The Real story

POUND WISE

With its fast-growing consumer and foods business, Dabur looks like a cool 'buy' this summer.

From a humble beginning in only ayurved-based prescription drugs to varied offerings encompassing food and beverages, personal care and healthcare products, the renewed focus has helped Dabur India truly evolve, while adding a more contemporary feel to its image.

After the turnaround over the last three years, Dabur India, today, is among the top fast-moving consumer goods (FMCG) companies in India with leading brands like Dabur Chyawanprash and Real fruit juices, among others.

Dabur has been growing on the back of various organic and inorganic initiatives, coupled with constant enhancements in products, packaging and communication, including a logo makeover.

"That it came up with innovative products and positioned them very well is Dabur's advantage. If you think of a digestive, the only name that comes to your mind is Hajmola," says Jabal Patel, equity analyst, Sushil Stock Broking.

Dabur has also been adding product variants to its kitty, which has become its biggest strength. Besides, the company roped in celebrities like superstar Amitabh Bachchan and cricketer Virendra Sehwag to endorse its products.

Also, the decision to hive off its pharma division in 2003 into a separate company "� Dabur Pharma "� has accorded more focus to both, the consumer and the pharma businesses.

Cleaner, meaner
Even as Dabur has been restructuring itself internally, its acquisitions have been quite successful. The Balsara buyout last year enabled it to bring into its fold brands like Odomos, Odonil, Promise and Sanifresh.

"The Balsara acquisition completely transformed Dabur into a high-growth company. It opened up for Dabur the home care segment in which it had no presence earlier. This category, being less penetrated, shows good growth potential. Dabur has also benefited from Balsara's strong presence in southern and eastern India," says Janish Shah, head of research, Networth Stock Broking.

Dabur is eyeing more acquisitions that would further widen its presence. As an analyst points out, Dabur generates Rs 250-300 crore free cash every year, which makes it easier for it to not only carry out acquisitions in both domestic and overseas markets, but also to enter new product categories.

"The new acquisitions will translate into higher growth for Dabur as it already has a well-established distribution network. They can contribute around 25 per cent growth in its bottom line," says Shah.

Care for consumer
Some of Dabur's products are market leaders. Dabur Chyawanprash, the first branded chyawanprash in India, is the undisputed market leader with 63 per cent share.

Fruit juices under the Real and Real Active brands dominate the segment with 60 per cent of the market. Lal Dant Manjan commands 40 per cent market share, close to its rival, Colgate. Dabur Amla hair oil leads the perfumed hair oil segment with 19 per cent share.

Consumer care, including product categories like hair oils, shampoos, oral care, health supplements, digestives, baby products and skin care, is Dabur's largest business contributing 70 per cent of its turnover and earning the best margins. In FY06, the division's turnover grew only 6.2 per cent. However, including Balsara's turnover, the growth was a robust 22 per cent.

Analysts say growth rate for this division is comparatively slower primarily because it includes many legacy and already mature products like Dabur Chyawanprash and Hajmola.

Also, soap and skin care products are not showing a good growth rate. New products and variants, Balasara's fast-growing home care business, changing consumption habits and growing organised retailing are expected to sustain the growth in consumer division at 30-35 per cent.

The foods business, including mainly fruit juices and a small segment of ready-to-cook pastes and soups, has shown the highest growth of 46.3 per cent in sales for Dabur.

Contributing around 10 per cent to turnover, the margins have been better in this business at 9-10 per cent. Dabur has presence in both premium and lower priced categories with its Active and Coolers ranges of juices, respectively.

Going forward, this segment is expected to grow at 30-35 per cent as the penetration level in fruit juices is quite low. "But this high growth won't translate into higher margins as Dabur is still in the investment mode for this business," says Shah.

The consumer healthcare business, including Ayurved-based OTC products and Ayurvedic centres where consumers can meet and consult Ayurved doctors, has been the second best performer, clocking a growth of 38.7 per cent in FY06. It is expected to continue to grow at around 25 per cent going forward.

Although this business currently contributes only 8 per cent to the turnover, it offers high margins. Besides, the increasing popularity of Ayurved will only boost the business.

The company's foray into the international markets, which contribute 12 per cent to its business, has grown 20 per cent in FY06. Dabur has presence in regions with large Indian population like the Middle East and Bangladesh.

It also intends to widen its footprint in the US, the UK and Malaysia. Given the increasing product categories and greater resources being invested in these markets, Dabur is expected to sustain its export growth.

The bottom line
Dabur's sales for FY06 grew around 8 per cent to Rs 1,369.68 crore from Rs 1,268.72 crore in FY05. At Rs 189 crore, its net profit rose nearly 28 per cent in FY06. The operating margins, too, improved from 14.81 per cent in FY05 to 17.76 per cent in FY06. 
 

FINANCIALS
	FY06	FY05	FY04	FY03
Net Sales (Rs cr)	1369.68	1268.72	1147.98	1232.30
y-o-y growth (%)	7.96	10.52	-6.84	-
Operating Profit (Rs cr)	243.32	187.92	136.09	134.65
y-o-y growth (%)	29.48	38.09	1.07	-
OPM (%)	17.76	14.81	11.85	10.93
Net Profit (Rs cr)	189.08	148.03	101.20	85.10
y-o-y growth (%)	27.73	46.27	18.92	-
NPM (%)	13.80	11.67	8.82	6.91

"Besides the cost-reduction initiatives, margins have been better due to the tax and excise benefits (available till 2012) the company enjoys based on the locations of its plants at Silvassa and Baddi (HP). At present, Dabur does not have to pay excise duty on an annual revenue of about Rs 500 crore. The excise-to-sales ratio for the company is 4 per cent. This is further likely to go down as production goes up at its Baddi plant," adds Shah.

But analysts differ on this point. Some say margins have stabilised, and going forward, they will improve only marginally, as the company has already almost fully derived the tax benefits.

At the current market price of Rs 150.10, the stock is trading at 31.94 and 27.29 times on its estimated FY07 and FY08 earnings of Rs 4.7 and Rs 5.5, respectively.

Analysts feel as all the other parameters have already been factored in the current price, the new acquisitions will be the trigger for a spurt in the stock price, as and when they are announced.