12 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S Dabur India Limited | A N N U A L R E P O R T | 2003-04 13
2003-04 HAS BEEN A VERY GOOD year for
the Indian economy. After a relatively poor
GDP growth of 4 per cent in 2002-03, the
first quarter of 2003-04 showed a growth
of 5.7 per cent. Excellent monsoons
contributed to an even higher growth of 8.4
per cent in the second quarter. The monsoon
effect coupled with a distinct upswing in
manufacturing and services has further
increased GDP growth to 10.4 per cent in
the third quarter. Today, it is quite clear that
India will close 2003-04 by achieving a
growth of at least 8.1 per cent. This will not
only be the highest GDP growth achieved by
the country since the advent of economic
liberalisation, but also one of the highest
growth rates in the world. Chart A compares
overall GDP and sector-wise growth rates
between 2002-03 and 2003-04.
This impressive economic growth has
translated into a 6.6 per cent growth in per
capita real income for 2003-04 against a
1.8 per cent growth in 2002-03. Based on
this growth — especially coming as it has
with excellent agriculture — one would
have predicted high growth in the fast
moving consumer goods (FMCG) markets.
While some players such as Dabur India
Limited have achieved creditable top-line
growth, the overall industry-level growth
has been lower than what might have been
expected, given the economic performance
of the country. This requires some
explanation.
There are two hypotheses making the
rounds. According to one, the impressive
growth in GDP, as well as agricultural and
rural incomes, has occurred over the last
nine months, especially after the monsoons.
management discussion+ analysis
Posited by consumer goods companies that
are struggling to achieve low single-digit
growth, this theory suggests that it takes
two consecutive years of good or normal-
to-good monsoons to trigger a sustained
growth in agricultural and rural
consumption. Thus, substantial rise in rural
FMCG spends will occur only after this
year’s monsoons, provided the rains are
adequate between June and September.
The second hypothesis is based on
substitution. According to this theory, while
improved incomes promote wider use of
FMCG products, there is also greater
diversion of incremental personal
disposable incomes to “lifestyle” products
and services, such as entertainment and
consumer durables. In such a milieu of
substitution at the top-end, rapid and
sustained growth of core FMCG markets
requires more households to enter at the
bottom end. This requires sustained growth
in personal disposable incomes across a
wide strata of society, especially those in
the lower and lower-to-middle income
groups. Once again, the story veers to the
theme of “once is not enough” — namely,
that India needs more than one year of high
GDP growth for the core FMCG industry to
generate sustained double-digit top-line
growth.
Whatever the hypothesis, the data
reported by ORG MARG certainly shows
negative growth across the basic FMCG
segments where Dabur competes. Chart B
depicts the data.
Sluggish demand in 2003-04 has led to
intense competition in the sector. In many
segments, companies have resorted to price
wars to gain market share. For instance, in
shampoos, while value growth was a
negative 3.8 per cent (see Chart B), the ORG
data shows that volumes actually grew by
5.6 per cent. Similarly, in toothpastes, while
volumes decreased by 5.2 per cent, the
market shrunk by 12.4 per cent in terms of
value. In addition to this, regional players,
too, have offered lower priced products to
further increase the price competition.
Moreover, 2003-04 also witnessed
increases across a wide spectrum of raw
material prices. Rising oil prices created an
inflationary trend in most petrochemical
products like packaging material, which is
an important element of costs in the FMCG
segment. Higher energy prices also led to
increased freight — putting pressure on
costs of sourcing raw materials and
distributing final products. Therefore, most
companies in the FMCG segment had to
operate in challenging conditions of a
shrinking market with rising costs.
Dabur India Limited’s performance in
such an environment has been very
creditable. Through its strategic initiatives
and efficient execution, your company has
not only met the market challenges, but
also has registered a strong performance in
2003-04. The highlights of Dabur’s financial
performance during the year under review
are: (all figures are compared to
corresponding figures for Dabur (FMCG)
" Revenue from operations increased by 9.5
per cent from Rs.1048.5 crore for 2002-03
to Rs.1148 crore for 2003-04.
" Operating profit (PBDIT) increased by 24.1
per cent from Rs. 109.6 crore in 2002-03
to Rs. 136.1 crore in 2003-04
" Interest outgo decreased by 42.2 per cent
from Rs.11.9 crore in 2002-03 to Rs. 6.9
crore in 2003-04.
" Profit after tax (PAT) increased by 40.6 per
cent from Rs.72.0 crore in 2002-03 to
Rs.101.2 crore in 2003-04.
" Return on capital employed (ROCE)
increased from 27.2 per cent in 2002-03
to 34.9 per cent in 2003-04
" Return on net worth (RONW) increased
from 32.3 per cent in 2002-03 to 38.6 per
cent in 2003-04
Your Company’s creditable performance in
2003-04 can be attributed to its successful
positioning as an FMCG player leveraging
the herbal specialist platform — and shows
how successfully the management has
executed the strategic initiatives that were
introduced in the second half of 2002-03.
2003-04 was the first year of operation
for Dabur India Limited as a de-merged
FMCG entity. The de-merger was intended
to make the new organisation a focused
FMCG company, and so improve efficiencies
and return on assets.
If you will recollect, the Annual Report
for 2002-03 outlined several key initiatives
to drive your Company’s FMCG businesses.
To recapitulate:
" Dabur India Limited would drive higher
growth by drawing on its core strength of
being India’s most well recognised herbal
specialist company.
" The Company would focus on five key
brands — Dabur, Vatika, Anmol, Hajmola
and Real — and would back these up by
Your company has registered a strong performancein 2003-04 through its new initiatives and efficientexecution of strategies
14 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
new and innovative product launches,
stronger advertising and larger marketing
spends.
" The distribution network would be
substantially streamlined and
strengthened.
" Organisational changes would be
undertaken to drive efficiencies and
synergies across all FMCG brands.
We believe that your Company has
successfully implemented these initiatives
in its first year as a de-merged organisation.
This is borne out by the 9.5 per cent growth
in top-line; by a 24.1 per cent increase in
PBDIT; by a 40.6 per cent increase in PAT; by
major reduction in net working capital to
negative position; and by a 7.7 percentage
points increase in return on capital
employed (ROCE).
While your Company is upbeat with its
implementation successes in 2003-04, it
recognises that Dabur India Limited
operates in a very competitive environment
— one that will get even more competitive
in the years to come. To consistently
succeed, therefore, your Company will have
to explore new opportunities, especially
international businesses, and reinvent itself
on a continuous basis.
Going forward, Dabur India Limited
intends to grow by rejuvenating old
products, launching new products and, in
the coming years, by laying far greater
emphasis on exports. From a business point
of view, therefore, it is useful to examine
your Company’s activities in terms of its
domestic and international operations.
" Domestic businesses This constitutes the
Consumer Care Division (CCD), the
Consumer Healthcare Division (CHD) and
subsidiaries including Dabur Foods
Limited
" International operations These are carried
out by the umbrella subsidiary Dabur
International Limited and Dabur Nepal
Private Limited.
While the marketing functions are different
across the divisions and subsidiaries, there
is considerable integration in operational
functions of sourcing and supply chain
management. The salient features of the
consolidated financial performance of
Dabur India Limited.
" Consolidated sales from operations
increased by 12 per cent from Rs.1187.1
crore in 2002-03 to Rs.1329.6 in 2003-04
" Consolidated PAT (after accounting for
minority interest) increased by 36.7 per
cent from Rs.77.9 crore in 2002-03 to
Rs.106.5 crore in 2003-04
DOMESTIC BUSINESS
MARKETSConsumer Care Division (CCD)With your Company’s new exclusive
focus on the FMCG space, the erstwhile
personal care products division and the
healthcare products division have been
merged to form the Consumer Care Division
(CCD) — which deals with pure FMCG
products. The division’s portfolio includes
health supplements, digestives and
confectionery, oral care, hair care, and baby
and skin Care. Chart C gives the relative
sales composition for 2003-04.
CCD is the prime driver of Dabur’s growth
and contributes 84 per cent to Dabur’s total
domestic sales including foods. It succeeded
in overcoming the prevailing sluggish
market conditions, and registered an 11.5
per cent growth in sales from Rs.907.5 crore
in 2002-03 to Rs.1011.8 crore in 2003-04.
This sales growth has been coupled by
operational efficiencies — leading to a
growth in gross margins.
HAIR CARE
With a 37 per cent share, hair care is
the largest category in the CCD’s portfolio.
You Company’s entire hair care portfolio
grew by 4.7 per cent in 2003-04. This
growth was driven primarily by growth in
hair oils, while growth in shampoos
remained stagnant. The hair care segment is
a very competitive one and fierce price
wars, especially in the shampoo category,
are imminent. Going forward, Dabur will try
to shield itself from the price wars by
leveraging its herbal niche to build on the
brand loyalty it enjoys in this segment.
In hair oils, Dabur Amla Hair Oil, which
accounts for the lion’s share of your
Company’s hair oil sales recorded a
satisfactory 5.1 per cent growth in value
terms. Even more pleasing was the
performance of Vatika Hair oil — a coconut
based oil with added herbs — which grew by
an incredible 10.1 per cent in value terms.
The growth in Vatika Hair Oil was supported
by a new “Vatika Women” advertisement
campaign.
During the year under review, your
Dabur India Limited | A N N U A L R E P O R T | 2003-04 15
The de-merger was intended to make the neworganisation a focused FMCG company
Dabur India Limited | A N N U A L R E P O R T | 2003-04 1716 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
ORAL CARE
Dabur is primarily a player in tooth
powders, which accounts for around 21 per
cent of the aggregate oral care segment in
India. ORG-MARG data suggests that
toothpowder sales in the aggregate have
decreased by 8.1 per cent in the year under
review. Nevertheless, sales of Dabur Lal
Dant Manjan grew by 9.6 per cent in 2003-
04. Consequently, your Company has
succeeded in increasing its market share
from 28.5 per cent in 2002-03 to 29.9 per
cent in 2003-04.
We are now witnessing intense
competition in the oral care segment,
with the introduction of extremely
low priced toothpastes — which
are expected to transform
toothpowder users into
toothpaste users. Your
Company, however,
believes that
Company also introduced Anmol Sarso
Amla Hair oil. This oil, which is a non-sticky
combination of mustard oil with amla
extract, has been launched on the economy
platform.
ORG MARG data shows that the shampoo
market contracted by 3.8 per cent in value
terms in 2003-04. Dabur has not been able
to sufficiently insulate itself from this
downturn — while Vatika Anti-Dandruff
Shampoo recorded moderate growth, sales
of Vatika Henna Cream Conditioning
Shampoo were stagnant.
During 2003-04, your Company launched
the Anmol Natural Shine Shampoo, an
economy product for value conscious
consumers. Dabur believes that growth in
shampoos will occur at the economy-end of
the market — and this new product is
strategically positioned to drive growth in
this segment. Your Company has selected
the actress Rani Mukherjee as its brand
ambassador for hair care products.
HEALTH SUPPLEMENTS
Health supplements is the second largest
segment of the CCD’s portfolio and
accounts for 23 per cent of total CCD sales.
One of the major success stories of the
year was the new momentum to Dabur’s
flagship product, Chyawanprash. Driven by
a new contemporary packaging and an
aggressive advertising campaign featuring
Amitabh Bachchan as its brand ambassador,
sales of Chyawanprash grew by 8.5 per cent
in 2003-04 over sales in 2002-03. The ORG-
MARG data shows that Dabur
Chyawanprash has increased its market
share from 62.4 per cent in 2002-03 to 65.2
per cent in 2003-04.
Glucose D registered a 9.3 per cent
growth in the year under review and,
according to ORG-MARG data, increased its
market share from 12.5 per cent in 2002-03
to 14 per cent in 2003-04. Dabur Honey,
which is the largest Indian branded honey
in the organised sector, witnessed a
phenomenal 27.4 per cent growth in 2003-
04.
The success of these products has
translated into a 10.9 per cent growth in
the sales of health supplements in 2003-04.
DIGESTIVES AND CONFECTIONERY
According to ORG-MARG data, at the
all-India level, digestives witnessed a
negative 8.3 per cent growth in 2003-04.
Despite this gloomy scenario, your Company
has succeeded in growing the sales of
digestives and confectionery by 5.1 per cent
in 2003-04.
While the sales of Hajmola candy have
actually decreased in 2003-04, growth in
this sector has come from extension of the
Hajmola brand into new formats like
Anardana — which is the first ever branded
churan (digestive powder) — and launch of
new products like Hajmola Candy Fun2,
which is a unique candy having a fruity
crust and a spicy centre filling. Another new
product called Hajmola Mast Masala, a
tasty chat masala that also helps in
digestion is being test marketed in Kolkata.
All these new products have been well
received by consumers and should drive
growth in this segment in the coming years.
The company will focus on five key brands—Dabur,Vatika, Hajmola, Real and Anmol
18 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
of any given segment. It is also important to
note that in most products, barring a few,
Dabur’s market share is below 10 per cent
and there is considerable scope of growth
by capturing market share even if the sector
witnesses a downturn.
Consumer Healthcare Division(CHD)The consumer healthcare division of
your Company includes products of the
erstwhile Ayurvedic Specialists Division and
a set of over the counter (OTC) products
based on the ayurvedic medicinal platform.
The range of products offerings, which are
based on ‘grantha-based’ formulations, can
be broadly classified into OTCs, branded
ethical and generic products that include
Asavs, and classicals. The division is
supported continuously by in-house
research. There is also a tie-up with Shri
Dhanwantry Educational Society, which
owns and manages an ayurvedic hospital,
college and pharmacy in Chandigarh, for
assistance in research and clinical trials.
Sales of this division grew by 3.3 per cent
from Rs.82.6 crore in 2002-03 to Rs. 85.3
crore in 2003-04. Although, the CHD
accounts for about 7 per cent of Dabur’s
domestic sales including foods, this division,
with its healthy margins, is an important
element of Dabur’s product portfolio.
It is difficult to substantially grow in the
market dealing with ayurvedic medicines
prescribed by vaids and practitioners
certified as BAMS (Bachelor of Ayurvedic
Medical Sciences). For one, the ayurvedic
doctor community is shrinking; for another,
Dabur India Limited | A N N U A L R E P O R T | 2003-04 19
India is still immature in dental hygiene.
Almost a third of the population do not use
toothpowder or pastes but rely on
substances like ash and branches of neem
trees. As incomes rise, this section will
initially move to using toothpowder, even as
a section migrates from toothpowder to
toothpastes. Therefore, Dabur ought to
retain its prime position in the tooth
powder segment and, indeed, grow the
market.
Anticipating the dynamics of the oral
care segment, Dabur has forayed into the
toothpaste market with the launch of Dabur
Red toothpaste in April 2003. This
toothpaste, containing more than seven
herbs, has successfully captured more than
1 per cent of the overall market in its very
first year. Binaca portfolio comprising
toothbrushes grew by an impressive 13 per
cent during 2003-04.
BABY AND SKIN CARE
This segment accounts for only 7 per
cent of CCD’s sales. However, during the
year under review, it recorded one of the
highest segmental growth with a 21.6 per
cent increase in sales. In the baby massage
oil category, Dabur Lal Tail maintained its
leadership position, while Gulabari
maintained its strong growth momentum
with its skincare positioning. The Vatika
brand has been extended into the skin care
segment with the introduction of Vatika
Fairness Face Pack.
KEY INITIATIVES AND OUTLOOK
Two key initiatives undertaken in 2003-
04 were the further enhancement of the
new branding exercise and launch of
several strategically positioned new
products. The first major part of the
branding exercise was the repositioning of
the product Chyawanprash. Apart from
rejuvenating Chyawanprash as a product,
the repositioning was important to
revitalise the Dabur brand — which is
identified as the flagship brand of your
Company.
Since the product caters mainly to the
middle aged and older generations it was
imperative to have a universally popular yet
mature personality endorsing the brand.
Thus, Amitabh Bachchan was selected as
brand ambassador for Chyawanprash. This,
coupled with a packaging make over, has
given Chyawanprash a new life and in turn
rejuvenated Dabur as a brand. Such
exercises will be carried forward to other
brands.
In 2003-04, your Company recorded its
highest ever revenue from new product
launches in a single year. These new
products cover a wide range of segments,
and should provide Dabur India Limited
with the platforms for future growth.
Going forward we believe that the
industry will pick up with a lag. However
certain segments, like hair care and oral
care, will witness fierce price competition,
and growth will happen primarily in low
margin areas. Your Company has
anticipated this, and initiated its strategy of
spreading products across price and market
segments — thereby hedging downturn risks
Consumer Care Division succeeded in overcomingsluggish market conditions and registered agrowth of 11.5 per cent in sales
20
there is low brand loyalty, which results in
competition from several small and regional
players.
Therefore, your Company has identified
the OTC route as the high growth area. It is
important to note that growth in this
segment will happen with an increasing
faith in ayurveda as a proven alternative
form of treatment. The challenge is to
identify the right therapeutic areas —
common ailments like cough, cold and joint
pains, women’s health care and adjuvant
therapies for lifestyle related problems are
the initial choices — to develop
formulations, undertake clinical trials to
prove efficacy, and to successfully brand
these products and strengthen the OTC
route for their sales. The OTC products will
be advertised.
FOODS BUSINESS
Dabur Foods LimitedDabur Foods Limited (DFL), a wholly
owned subsidiary of Dabur India Limited,
markets natural fruit juices, ethnic cooking
pastes, sauces and tea. 2003-04 has been a
landmark year for this company. Not only
did sales grow by 24.2 per cent from Rs.69.1
crore in 2002-03 to Rs.85.8 crore in 2003-
04, but the Company recorded a positive
PAT of Rs.1.5 crore for the first time in its
short history.
During the year, sales of DFL’s flagship
product Real juices grew by 36 per cent.
Within this portfolio the “Activ” range grew
at a faster rate. In 2003-04, two new
flavours were added to the Real portfolio —
M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
Real Activ Carrot-Orange and Real
Cranberry. This now takes the number of
flavours under the Real brand to 12. DFL is
also in the process of launching Real juices
in 125 ml packs called “Real Junior”. This
product, which is being initially launched in
two flavours, is targeted at school-going
children.
In the Hommade range, coconut milk and
tomato puree did well. In order to leverage
its existing distribution network, DFL has
also started distributing Dilmah tea in India.
Dilmah, a Sri Lankan tea, is one of the
largest tea brands in the world.
A part of DFL’s growth strategy is to focus
on institutional sales. This is being adopted
for its key brand portfolios like Real,
Hommade, Lemoneez, and Capsico. DFL will
be launching large packs branded as
“Nature’s Best” to target institutional sales.
In 2004-05, DFL intends to grow through
new product offerings, sharpened
marketing strategy and more focused
advertising campaigns. Even more effort
will go into streamlining manufacturing
and procurement processes to improve
efficiencies and maintain margins in foods
— which is a very competitive, tight margin
environment.
INTERNATIONAL BUSINESS
As a conscious business strategy, your
Company has decided to enter the
international market more aggressively.
Dabur believes it is well positioned to
develop existing markets and enter newer
markets leveraging its herbal specialist
platform.
The first step in this direction was the
acquisition of Redrock Limited, an UAE-
based company through which Dabur
products were sold in the Middle East.
Acquiring Redrock has resulted in its
manufacturing facilities at the Jebel Ali
Export Processing Zone and Sharjah being
added to Dabur’s existing units in the sub-
continent. In addition, Redrock’s Middle-
Eastern rights on the brand Weikfield have
also transferred to your Company. The
acquired company has been renamed Dabur
International Limited, and is under the
charge of a new CEO — who, with a new,
dedicated team, will operate out of Dubai.
This new company has also taken charge of
Dabur Egypt Limited and its manufacturing
facility in Egypt.
Dabur International’s joint venture in
Bangladesh, called Asian Consumer Care
Private Limited, also became operational
during the course of the year. This venture,
which also has a manufacturing unit in
Dacca, launched Vatika Shampoo, Dabur
Amla Hair Oil and Vatika Hair Oil during
2003-04. Your Company expects the
Bangladesh market — with similar
preferences as in India for herbal products
— to be a growth driver in the future.
As a result of organic and inorganic
growth, international business, which
includes exports from India, contributed 9.6
per cent to your Company’s consolidated
sales. In 2004-05 it is expected that
international operations and overseas sales
will account for an even larger share of
Dabur’s overall sales and profits. Table 1
gives the relative contributions in the last
Dabur India Limited | A N N U A L R E P O R T | 2003-04 21
Your Company has identified the OTC route as thehigh growth area
22 Dabur India Limited | A N N U A L R E P O R T | 2003-04 23Dabur India Limited | A N N U A L R E P O R T | 2003-04M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
Uttaranchal. Both new plants — at Jammu
and Uttaranchal — will meet worldwide
standards of good manufacturing practices
(GMP) and hazard analysis and critical
control plant (HACCP). Also, the existing
unit at Katni (Madhya Pradesh) will be
upgraded during 2004-05.
Your Company has always given
considerable importance to improving the
productivity of its plants and production
process. This year, the focus was on
automation and de-bottlenecking of the
production process, backed by better
maintenance. Kaizen, implementation of
stringent wastage control norms and energy
audits at various plant locations constitute
some of the other initiatives taken during
the year.
As a result of these and other ongoing
initiatives, the operating profit margins of
the Company improved from 10 per cent in
2002-03 to 10.9 per cent in 2003-04.
Moreover, the cash overheads have
remained constant over the last two to
three years in spite of a significant increase
in the turnover. As can be inferred from
Chart D, productivity — defined as sales
turnover per employee — has increased by
over 9.0 per cent from Rs.33 lakh in 2002-
03 to Rs.36 lakh in 2003-04. Wastage on
the shop floor also improved by over 19.1
per cent in 2003-04 as compared to 2002-
03.
On the quality front, Dabur implemented
a decentralised structure by assigning its
production facilities and C&FAs to four
regional laboratories — all equipped with
new equipment of the latest technology,
and each supervised by a quality assurance
two years. While sales from international
grew from Rs.106.1 crore in 2002-03 to
Rs.128 crore in 2003-04, PAT from overseas
companies decreased from Rs.12.1 crore in
2002-03 to Rs.8.3 crore in 2003-04. This is
because Dabur has made new investments
into international companies, which need to
be turned around to reap more profits.
In order to aggressively target
international markets, Dabur International
has devised a multi-pronged strategy, which
varies from geography to geography. In the
Middle-East, it proposes to build and re-
build brands and customise products for
these markets. The focus on the Middle-
East, including Egypt, will be mostly Dabur’s
personal care brands. Bangladesh will be
catered to by both personal care and
healthcare brands. Dabur International sees
considerable opportunities in the CIS
countries, where the focus will be more on
healthcare products. Pakistan will be
personal care and healthcare.
2004-05 and the future will also see
Dabur International catering to the Asian
diaspora, and later to the mainstream
population, in the US, UK and Canada. There
are over 2 million Asians living in these
countries — and represent an excellent
market for Dabur’s herbal platforms in
healthcare. The company is already
negotiating with some US retailers to set up
“ethnic counters” for Dabur’s healthcare
products.
OPERATIONS
MANUFACTURINGYour Company has taken major initiatives
to upgrade manufacturing technology.
These initiatives include setting up of new
manufacturing facilities and upgrading of
existing units. Moreover, assets have been
put to maximum use so as to enable faster
turnover.
During the year under review, Dabur India
Limited commissioned a new production
facility at Jammu for manufacturing
personal care products. This exercise, which
involved both prefabricated and civil works,
was successfully completed in a record time
of six months. In addition, the facility at
Baddi (Himachal Pradesh) was also
expanded during 2003-04. This has
increased the percentage of consumer care
products manufactured by the Company,
which were earlier being out-sourced to
contract manufacturers.
The Company is also in the process of
commissioning another production unit in
Your Company has decided to enter the internationalmarket more aggressively, by leveraging its herbalspecialist platform
TABLE 1 RELATIVE SALES AND PROFITS OF
DABUR DOMESTIC AND OVERSEAS
2003-04 2002-03
DOMESTIC
Sales 1201.5 1081.0
% of Total 90.4 91.1
PAT 101.2 67.8
% of Total 92.4 84.9
OVERSEAS
Sales 128.0 106.1
% of Total 9.6 8.9
PAT 8.3 12.1
% of Total 7.6 15.1
head. This has made the system more
efficient and transparent, and the move is
already showing positive results. During
2003-04, product failures at the unit level
have been almost nil, and the rejection rate
at the consumer level has been as low as
0.3 parts per billion.
SUPPLY CHAIN MANAGEMENTYour Company has a very diverse supply
chain, as it handles an extremely wide
array of seasonal and non-seasonal raw
materials to produce and market over 600
SKUs through approximately 2,100
stockists. Dabur’s products cover over 6
lakh retail outlets — up from 5 lakh in
2002-03.
This year, as a part of its sourcing
strategy, the Company consolidated its
sourcing base for all group companies,
including its foreign operations, so as to
benefit from economies of scale. Also, by
hedging risks in the futures market for
important raw materials, the Company was
able to insulate itself from the highly
inflationary environment during the year.
As shown in Chart E, commodity prices
have risen significantly during 2003-04.
However, this did not have any negative
impact on the raw material spend. In spite
of the overall inflationary trend in the year,
cost of raw material as a percentage of
sales has come down from 44.9 per cent for
the FMCG business in 2002-03 to 43.8 per
cent in 2003-04.
During the year under review, the
Company has benefited significantly by the
success of the e-sourcing initiative taken in
the previous year with the support of
24 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
allow the management to focus on use of
information technology, rather than
managing it. It is a forward looking
initiative to ensure fast and effective
upgrading of technology to keep up with
latest developments, which will insulate the
Company from technological obsolescence.
As a part of this exercise, the Company is
in the process of implementing Hyperion —
a centralised data warehousing system for
its two ERPs. Besides the pure IT related
benefits, the Company will also benefit
from consultation and expertise on issues of
supply chain management and
Dabur India Limited | A N N U A L R E P O R T | 2003-04 25
FreeMarkets, a leading e-procurement
service provider. The Company procured
Rs.210 crore worth of raw materials
through e-sourcing, which accounts for
almost 50 per cent of its total raw material
spend. This initiative has brought in greater
transparency into the sourcing process and
resulted in substantial savings. Your
Company’s performance in sourcing was
also recognised by Indian Institute of
Materials Management, which awarded the
‘Chief Procurement Officer Award for 2003’
to Dabur’s Vice President–Supply
Management.
Encouraged by the success of its e-
sourcing initiative, the Company has
decided to implement the ‘Spend Visibility’
solution provided by FreeMarkets in 2004-
05. This will significantly improve the
quality of information available at an item-
wise level, allow better visibility of sourcing
priorities, and result in the formulation of a
more efficient and cost-effective sourcing
strategy.
On the sales and distribution side, Dabur
integrated its family care products division
and health care products division as a part
of its product portfolio restructuring
exercise during 2003-04. This was done
with a view to exploit the scale benefits and
synergies that existed between the two
businesses. More specifically, by eliminating
duplication of effort and increasing the
product basket, this has resulted in stronger
distributors with a greater reach, especially
in the rural markets.
Another major initiative taken by the
Company during the year was to reduce its
stocks at the stockists’ end, which involved
analysis and reassessment of their
requirements depending on their product
portfolio. As a result, pipelines have been
reduced considerably during the year. The
Company plans to continuously improve
this in the future.
Another initiative on the sales and
distribution side was the launch of ‘Dabur
My Page’ for online connectivity with the
top 500 stockists of the Company. This
system enables the stockists to check order
status, accounts statement and inventory
online, which makes distribution more
efficient and transparent. It has also
improved communication with the stockists
and simplified the management of
receivables. The Company expects to extend
this to other suppliers in the future.
Information TechnologyInformation technology has played a key
role in improving supply chain efficiencies
at Dabur. To leverage information
technology, your Company had successfully
implemented two ERP systems — Baan and
MfgPro — in production and distribution
respectively in the previous years. As
discussed earlier, the Company has also
gained substantially by its e-sourcing
initiative.
This year, your Company decided to out-
source its IT function, for which it has
entered into a 10-year IT outsourcing-cum-
consulting contract with Accenture. A
landmark exercise in ‘business
transformation out-sourcing (BTO)’, this will
enhance business performance through
proactive use of IT. It will be done by
leveraging existing infrastructure, and will
The e-sourcing initiative has brought ingreater transparency that has resulted insubstantial savings
Dabur India Limited | A N N U A L R E P O R T | 2003-04 2726 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
throughout the year and not even a single
day’s work was lost due to strikes or
disputes.
RESEARCH & DEVELOPMENTYour Company believes that research
and development is the key to innovation
and cornerstone of success. R&D has played
an important role in the developing of new
or improved products and processes. Dabur
Red Toothpaste, Vatika Fairness Face Pack,
Anmol Hair Oil and variants of Hajmola
candies, developed in-house by Dabur, were
very successful during the year under
review.
Several research initiatives during the
year were aimed at improving the quality
and appeal of the packaging of products
such as Dabur Chyawanprash and Dabur
Gripe Water. The Company also introduced
‘thermoform packaging’ for smaller packs of
products such as Lal Tail (Baby oil) and new
wrapping technology for square bottles
such as Dabur Honey.
Most of the research for new product
development for Dabur is done by the FMCG
wing of Dabur Research Foundation (DRF).
DRF has research and development facilities
of international standards for both
consumer care division (CCD) and consumer
healthcare division (CHD). The Company
expects significant benefits to accrue from
DRF in terms of quality research in the
future.
Dabur has also tied up with prestigious
ayurvedic and medical institutes such as
Dhanwantry Ayurvedic Hospital, Wardha
College, Poddar Institute and Benaras Hindu
University on matters related to research,
implementation of the Company’s strategy
as a part of this exercise.
Human Resources Dabur places great deal of confidence on
its excellent pool of human resources,
which it realises is the key to its future
growth strategy. The Company continued its
efforts to further align its HR policies,
processes and initiatives to meet the
business needs.
In line with its focus on international
operations, Dabur implemented a uniform
HR structure across all group companies
and operations. This will enable seamless
transition between domestic and overseas
positions. Also, the integration of the
personnel of the erstwhile Family Products
Division (FPD) and Health Care Products
Division (HCPD) was implemented
effectively to suit the business requirements
well within time. Major initiatives taken
during 2003-04 have been:
" Dabur implemented performance metrics
for all key positions based on two aspects
of the Balanced Scorecard approach —
Financial and Internal Business Process.
This approach clearly outlines the
expectations from each position, and will
be upgraded to include two more aspects
for key managerial positions in 2004-05.
" The Company institutionalised the
“Assessment & Development Centre”
(ADC) approach for all promotions from
staff to officer cadre and also at the senior
levels to objectively identify, develop and
promote the talent from within, and to
provide individual feedback for
development of the participating
employees. During the year, the Company
conducted four such ADCs.
" To encourage learning, your Company is
planning to set-up a learning centre,
which will be equipped with a library and
IT and web-based sources of knowledge.
The Company is also in the process of
setting up a knowledge management
portal and a leadership and capability
development cell.
" Dabur is committed to attract and nurture
fresh talent. Towards this end, your
Company recruited over 20 candidates
from leading management and
engineering institutes in the country, who
will be inducted into the Company
through the comprehensive management
training programme in 2004-05.
" In line with Dabur’s commitment to
ethical professional conduct, the
Company adopted a Code of Ethics and
Conduct, which will serve as a guideline
for our employees. In addition, to build
and strengthen a culture of transparency
and trust in the organisation, Dabur
introduced a Whistle Blower and
Protection Policy, encouraging not only
employees but also business associates to
report unethical business practices
without fear of reprisal.
As of 31 March 2004, Dabur has 1870
employees. Employee relations throughout
the year were supportive of business
performance across all the factories, with
significant improvements in the
productivity across all manufacturing units.
Industrial relations remained cordial
Dabur places great deal of confidence on itsexcellent human resources which, it realises, is thekey to its future growth
clinical trials and generating claims support
data.
ENVIRONMENTYour Company is committed to the well
being of the environment. The efforts
undertaken by Dabur India Limited in
managing and nurturing the environment
go much beyond the statutory requirements
stipulated by the central and state
governments. Substantial capital
investments have been made for effluent
treatment and air purification units in the
new plants located in Jammu and
Uttaranchal, which meet international
environmental standards.
In addition, efforts have been made to
tie-up with government and other agencies
to plant endangered species of plants and
herbs in herbal parks to prevent them from
extinction.
FINANCIALS
As you are aware, the Pharmaceutical
business of your Company was de-merged
and transferred to a new Company. This de-
merger was done with a view to provide the
two businesses—FMCG and
Pharmaceuticals—focus and resources to
pursue their own independent growth
strategies. 2003-04 was the first year of
operation of the businesses as separate
companies.
For the purpose of greater clarity and to
facilitate like-to-like comparison, we shall
analyse the financial performance of your
Company vis a vis the results of the FMCG
28 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
debt. These initiatives continued in the year
under review. Total debt of the Company
reduced to Rs.39.8 crore on 31 March 2004
compared with Rs.81.7 crore for the FMCG
business as on 31 March 2003.This has
significantly reduced interest payments
from Rs.11.9 crore in 2002-03 to Rs.6.9
crores in 2003-04 for the FMCG business—a
reduction of more than 42 per cent.
The strong top line growth coupled with
enhanced operational efficiencies has
translated into a healthy increase in profits.
Post tax profits (PAT) increased by 40.6 per
cent growth from Rs.72 crore in the FMCG
business in 2002-03 to Rs.101.2 crore in
2003-04.
A few of the salient features of the
Company’s financial performance are
highlighted below.
" Focussed improvements in supply chain
management has resulted in the company
working with negative working capital as
on 31 March 2004—the cash cycle has
reduced from 39 days in 2002-03 to minus
5 days in 2003-04
" All profitability ratios have improved.
EBIDTA margin (EBIDTA/Sales) improved
from 10.6 per cent in FMCG business and
11.1 per cent overall in 2002-03 to 12.0
per cent in 2003-04. The post tax profit
margin (PAT/Total income) increased from
6.8 per cent in FMCG business in 2002-03
to 8.8 per cent in 2003-04
" There has been a significant increase in
the Company’s return on capital employed
(ROCE), which increased from 27.2 per
cent in FMCG business in 2002-03 to 34.9
per cent in 2003-04. The Company has
been able to deliver better returns to its
shareholders in the form of higher return
on net worth (RONW), which grew from
32.3 per cent for the FMCG business and
20.8 per cent overall in 2002-03 to 38.6
per cent in 2003-04
Table 3 compares key financial ratios of
your company in 2003-04 as against
2002-03.
The de-merger has also considerably
reduced the Company’s risks associated
with financial gearing. The debt to equity
ratio—a measure of the gearing of the
Company—has reduced from 0.27 as on 31
March 2003 to 0.14 as on 31 March 2004.
The interest coverage ratio (ratio of profit
Dabur India Limited | A N N U A L R E P O R T | 2003-04 29
business of Dabur for 2002-03. Table 2
gives an overview of Dabur India Limited’s
financial performance in the year under
review.
Total revenue increased by 10.1 per cent
from Rs.1053.4 crore in 2002-03 to Rs.1159
crore in 2003-04. This top-line growth has
been backed by increase in efficiencies in
operations, which is reflected in a 24.1 per
cent increase in operating profit (PBDIT)
during 2003-04. Over the years, Dabur has
been taking steps to reduce its interest
outgo. These include securing low
cost debt by capitalising on
the Company’s strong
debt rating, as well as
retiring high cost
R & D has played an important role in developingof new products and processes
TABLE 2 DABUR INDIA LIMITED’SABRIDGED PROFIT & LOSS
STATEMENT FOR 2003-2004
(in Rs. Crore)
Dabur Dabur Dabur
03-04 02-03 02-03#
(FMCG) (FMCG)
Sales from operation 1148 1048.5 1232.3
Other income 11 4.9 8.3
Total Revenue 1159 1053.4 1240.6
Total Expenditure 1022.9 943.8 1105.9
Interest 6.9 11.9 17.1
Depreciation 15.7 17.7 22
PBDIT 136.1 109.6 134.7
PBIT 120.3 91.9 112.6
PBT 113.4 80 95.5
Current Tax 8.8 6.3 7.4
Deferred Tax 3.5 1.7 3
PAT 101.2 72 85.1
NOTE # Result includes both pharmaceutical and FMCG businesses
before interest and tax to interest
payments)—a measure of the Company’s
ability to pay interests through its profits—
has also improved significantly from 6.6 to
17.5 in the same period.
THREATS, RISKS ANDCONCERNSIn a year when India recorded one of its
highest GDP growth, the sluggish growth of
the FMCG sector is still a matter of concern
for us. The lack of significant expansion in
product categories, coupled with entry of
several smaller regional players, is
intensifying price competition, and
increasing pressure on margins.
There has been an upward trend in oil
prices and petroleum based products since
the latter half of 2003. This has resulted in
increased freight costs and costs of
petroleum based packaging materials. Since
freight and packaging constitute materially
significant proportions of Dabur’s costs, this
30 M A N A G E M E N T D I S C U S S I O N + A N A LY S I S
INTERNAL CONTROLS ANDTHEIR ADEQUACYDabur has a strong internal audit and
control system. PriceWaterhouse Coopers is
the internal auditor for the entire company
and its subsidiaries. The internal auditors
independently evaluate adequacy of
internal controls and concurrently audit the
majority of transactions in value
terms. The Company has an
independent Internal Audit
function staffed with qualified
and experienced people.
Independence of the audit and
compliance function is ensured
by the direct reporting of the
internal audit division to the
Audit Committee of the Board. For
the terms of reference of the Audit
Committee, refer to the section on
Corporate Governance of the Annual
Report.
CAUTIONARY STATEMENTStatements in this management
discussion and analysis describing the
Company’s objectives, projections,
estimates and expectations may be ‘forward
looking statements’ within the meaning of
applicable laws and regulations.
Actual results may differ
substantially or materially from
those expressed or implied.
Important developments
that could affect the
Company’s operations include
a downward trend
in the domestic
FMCG industry,
rise in input costs, exchange rate
fluctuations, and significant changes in
political and economic environment in
India, environment standards, tax laws,
litigation and labour relations.
trend in high oil prices is a cause of
concern.
As a market leader in the Indian Ayurveda
and herbal products market, Dabur is also
concerned about the adverse impact that
counterfeit, spurious and low quality
products can have on credibility of this
entire industry, and hence its growth. Rapid
deforestation leading to erosion of certain
species of herbs, which form our raw
material base, is another element of risk.
OPPORTUNITIES ANDOUTLOOKDabur is aware of the risks and concerns
noted above and has devised its business
strategy accordingly. By increasing its
product portfolio, leveraging its brand value
as a herbal specialist and strategically
positioning its products, the Company
believes that it will largely de-risk itself
from pricing pressures and segmental
contractions.
Your Company believes monsoons will
continue to play an important role in the
growth of the Indian economy, particularly
in volume growths in the FMCG sector. The
consumption of consumer goods has
reached an inflexion point, and the sector is
at the cusp of significant growth. We are
cautiously optimistic of our prospects in
2004-05 and believe that a good monsoon
in 2004 will go a long way in stabilising our
growth path.
Dabur has tied up with prestigious ayurvedic andmedical institutes on matters related to researchand clinical trials
TABLE 3 KEY FINANCIAL RATIOS
Dabur Dabur Dabur
03-04 02-03 02-03#
(FMCG) (FMCG)
PBDIT*/Sales** 10.9% 10.0% 10.3%
PBIT/ Sales** 10.5% 8.8% 9.1%
PBT/Total income 9.9% 7.6% 7.7%
PAT/Total income 8.8% 6.8% 6.9%
ROCE 34.9% 27.7% 19.4%
RONW 38.6% 32.2% 20.7%
NOTE * In order to get a more accurate picture of theCompany’s operational performance, PBDIT has beencalculated net of “other income’’ | ** Sales fromoperations | # Result includes both pharmaceuticaland FMCG businesses
Dabur India Limited | A N N U A L R E P O R T | 2003-04 31
Top Related