Dabur: Recast lift

Dabur has posted an impressive set of numbers indeed

Dabur's restructuring activity has resulted in impressive growth in net profit for the second year running. While net profit rose 32.1 per cent in FY03, things got even better this year as consolidated net profit increased 36.8 per cent.

This was on the back of a 12 per cent growth in consolidated revenues. The above figures pertain to the company's FMCG business only, since the pharma division has been demerged effective April 1, 2003.

The results were received well by the markets "" the declining trend in the past few sessions has hardly had an impact on the Dabur stock.

The jump in net profit was partly on account of a 50 basis point improvement in operating margin. Dabur's e-sourcing initiative now covers 50 per cent of its raw material spend and this has resulted in considerable savings for the company.

Further, new manufacturing facilities at tax havens, Jammu and Himachal Pradesh also resulted in savings.

Purchase of finished goods from third parties dropped from 18.2 per cent of sales in FY03 to 16 per cent last fiscal. There's another unit coming up at Uttaranchal, and the three units together will account for a significant chunk of the company's production, which will result in savings even going forward.

Apart from the savings on operating costs, higher other income and a cut in interest costs also played a part in the jump in net profit.

The debt on the company's books was cut to half, while working capital requirements were reduced by Rs 129 crore.

The important thing is that Dabur had a negative working capital for the first time ever as on March 31, 2004. This is quite a turnaround, especially since working capital stood at 82 days' sales just two years ago.

What's more, the reduction in the balance sheet size has led to jump in ROCE (return on capital employed) to 54.4 per cent from just 28 per cent in FY03.

On the revenues front, it's significant that almost all the key product categories performed well last fiscal. While hair care products grew sales by 7.6 per cent, oral care sales jumped 24.5 per cent, sales of Chyawanprash increased 8.5 per cent, and that of digestives grew 5 per cent.

Importantly, the company made around seven major launches last fiscal and these new products already account for around 4 per cent of sales.

Although the demerger of the pharma division is already effective, the Dabur India stock still includes the valuation of the pharma business. The split of the stock into two is expected to happen soon, and this will result in an unlocking of value for the FMCG business, which enjoys a much better return.

With contributions from Mobis Philipose