Company Analysis: Dabur India Limited

Background 

• Dabur India Limited is a 115 year old FMCG company operating in the niche natural/ayurvedic products segment with a product folio of over 500 products. Its core competence lies in its ability to conceive, develop and market products based on herbs and natural resources. 

• Its product portfolio includes major brands like Dabur Chyawanprash (health tonic/anti-infective-12% of total revenues), Hajmola (8%) and Pudin Hara (digestives), Lal Dant Manjan (tooth powder - 14%), Amla (14% of revenues) and Vatika hair oils, Dabur Honey, all of which rank #1 in their respective segments in the Indian market. 

• Dabur is also a leading player in the anti-cancer segment and was the first company in India to have developed the anti-cancer intermediary DAB-10 and its associated drug paclitaxel (Taxol). 

• Dabur outsources 50% of its products, therefore earning low margins as compared to other FMCG companies.  

• Dabur has an extensive distribution of over 540,000 retailers in India. In a bid to widen its product range, expand its market reach and leverage its distribution strengths,Dabur has also set up five joint ventures in India and abroad and manufacturing subsidiaries in Nepal and Egypt. 

• All of the above viz. presence in a niche industry of ayurveda products, strong brands, and diverse product portfolio, backed by strong research, serves as an entry barrier for new entrants. 

• Currently,Dabur is in the transition phase as it is carrying out the recommendations of the Mckinsey Report. It is spinning off non-core businesses into separate subsidiaries. There is now an all-new professional management team as a result of these recommendations.  

• In line with the restructuring exercise undertaken in FY95, Dabur's operations were divided into seven SBUs:

• This is the largest division contributing over 40% to the revenues of Dabur. Dabur Amla Hair and Lal Dant Manjan (both grossing sales of more than Rs 1 bn each) belong to this division. FPD's products include hair-care products, oral-care products, herbal powders and some foods. Dabur Honey, a Rs 300 m brand is a part of FPD. Dabur manufactures amla oil, pure coconut oil as well as value added coconut oils. Dabur introduced Vatika hair oil in FY95. This has grown into a Rs 200 m brand by FY98 and its strong brand equity has led to its being used as a mother brand by Dabur. It recently launched the Vatika range of shampoos.

• Oral-care - Lal Dant Manjan, a red tooth powder (another billionaire brand) and Denta Care in the white tooth powder segment comprise this segment. Dabur plans to relaunch the Binaca range of toothpaste (acquired from Reckitt & Colman in FY96) in April 1999. 
 
• Foods - This comprises of Dabur Honey in the highly fragmented natural honey segment, Sharbat-e-Azam (an Indian beverage), Gulabbari (Rose water) and Kewra water both used as food flavours.

• HPCD constitutes Dabur's second largest division in revenue generation terms. The contributions of this division tend to be, on an average, 9-10% higher than the Family Products division since there is greater value addition in this division. Its major products include ayurvedics, digestives, and mother & childcare products. These products are in the nature of over the counter (OTC) products and not ethical or prescription based products. Within these, ayurvedics include health tonics and cough syrups.

• This is the allopathic drugs division contributing around 8% to Dabur's turnover. It makes branded formulations and generics (which it is planning to phase out as per Mckinsey recommendations). Therapeutic segments in which Dabur is operative are anti-cancer, anti-histamine, anti-fungal, antacid and anti-bacterial. It also makes contrast media.

• Dabur is now focussing on Oncology (study of tumours). Though this business accounts for only 2% of revenues, it is extremely profitable and has been growing by 30% YoY since 1995. Dabur is one of the few companies in the world, which makes paclitaxel, an anti-cancer drug marketed under the brand name of Intaxel. The company has developed this drug through process re-engineering. Oncology business is slated to be transferred to its UK based 100% subsidiary in April 1999, on McKinsey's recommendation.

• This division makes ethical or prescription based medicines/formulations, which are dispensed largely through ayurvedic doctors, contributing around 6% to Dabur's turnover. In FY97, the company introduced branded products such as Stresscom and Rheumatil in this segment.

• Ayurvedic veterinary products for cattle and poultry form the mainstay of this segment, contributing around 1% to Dabur's turnover. In FY98, this division launched a range of pet care products under the brand name of Ayupet.

• The foods division, (1% of revenues), is non-profitable at present. Its products include Real brand of fruit juices and a range of ethnic pastes under the brand Hommade. In FY97, Dabur ventured into the cosmetics industry under the brand name Samara. (The management expects this division to contribute 3% of total revenues by the year 2000. This division is also slated to become a 100% separate subsidiary as per the Mckinsey recommendations).

• Dabur exports personal and health-care products, guar gum and bulk drugs. A large chunk of exports (37% in FY97) were merchant exports, which have been discontinued in FY98 as per the McKinsey recommendations. This will reduce the divisions revenue share to 8% by FY2000.

• Dabur's management is keen to implement the Mckinsey recommendations which implies
• Exit from non-core businesses or spinning them off as 100% subsidiaries
• Introducing new products and brands in ayurvedic category
• Promoting its products in the West where its products will attract a premium
• Working towards improving its working capital management
• Increasing ad-spend on top brands (Rs 1 bn FY99E)

• Since Dabur earns low margins as compared to other FMCG companies, increased ad-spend will put further pressure on margins
• Dabur has been slow to react on some of Mckinsey recommendations and has faced some resistance from some members of the promoter family (namely, to exit from non-core businesses).