Contents History..................................................................................................................................................... ..................................................................................................................................................... 2 Business Overview .................................................................................................................................. .................................................................................................................................. 2 Value Chain Analysis ............................................................................................................................... ............................................................................................................................... 3 Primary................................................................................................................................................ ................................................................................................................................................ 3 Secondary............................................................................... Secondary............................................................................................................................................ ............................................................. 4 Framework.............................................................................................................................................. .............................................................................................................................................. 5 Porter’s five forces .................................................................. .............................................................................................................................. ............................................................ 5
BCG Matrix ........................................................................................................................................ .......................................................................................................................................... .. 6 Environmental Analysis ...................... ............................................................................................ ................................................................................................. ........................... 7 Evaluation of options ......................................................................................................................... .............................................................................................................................. ..... 9 Pros and cons of going global and the different transaction costs involved ...................................... 9 Options................................................................................................................................................ ................................................................................................................................................ 9 1
Financial Statements (Source MoneyControl) ............................................................. ...................................................................................... ......................... 11 Balance Sheet .......................... ............................................................................................... .......................................................................................................... ..................................... 11 Cash Flow .......................................................................................................................................... .......................................................................................................................................... 12 Profit & Loss Statements.................................................................... ................................................................................................................... ............................................... 13 Conclusion and Recommendations Recommendations .................................................................. ...................................................................................................... .................................... 14
DABUR INDIA LIMITED
History Dabur India Limited is the fourth largest FMCG Company in India with interests in Health care, Personal care and Food products. Over its 120 years of existence, the Dabur brand has stood for goodness through a natural lifestyle. An umbrella name for a variety of products, ranging from hair care to honey, Dabur has consistently ranked among India's top br ands. The company traces its origins to 1884, when Dr S.K. Burman set up Dabur as a proprietary firm for the manufacture of Ayurvedic drugs. Dr Burman set up the firm with a goal of meeting the healthcare needs of poor Indians. Initially the company marketed anallopathic drug, Plagin, to combat the then prevalent epidemic of plague. With growing demand, Dr Burman established a manufacturing plant in Kolkata in 1896, and Dabur became the first company to mass-produce Ayurvedic formulations under modern scientific methods. Dabur India Limited has marked its presence with some very significant achievements and today commands a market leadership status. Dabur India Limited has committed itself to the task of providing value for money healthcare products to its consumers. Through a range of more than 300 health and personal care products Dabur has become synonymous synonymous with health custodians for teeming masses. Dabur India Limited has marked its presence with some very significant achievements and today commands a market leadership status. In 1940, Dabur entered the domain of personal care with the launch of Dabur Amla Hair Oil. In 1949, the company introduced Dabur Chyawanprash, the first branded restorative in a packaged form. The company expanded its product portfolio by adding oral care products in 1970. The year 1972 witnessed a shifting of operations from Kolkata to Delhi. Over the next decades, the company saw its portfolio expanding through introduction of new products and categories. At the turn of the millennium, Dabur staged a turnover of Rs.1000 crore.
Business Overview Today, Dabur is the leading consumer goods company in India with a turnover of Rs.1899.57 crores. Dabur's products fall under the heads of Health care, Personal care, Ayurvedic Specialties and Foods. Dabur has 13 ultra-modern manufacturing units spread around the globe and its products are marketed in over 50 countries. Dabur India Limited has two major strategic business units (SBU) i.e. Consumer Care Division (CCD) and Consumer Health Division (CHD). The CCD (70% of revenues) comprises health supplements, digestives and candies, hair care, oral care, baby oils and skin care. The CHD (8% of revenues) includes products of the erstwhile Ayurveda Division and a set of OTC products. The International Business Division (11% of revenues) comprises the company's business in Dubai, South East, and Bangladesh. The Food division (10%of revenues) comprises of Real fruit juice homemade cooking paste and lemoneez. Source: www.dabur.com
2
Value Chain Analysis
Primary Inbound Logistics:
Long term contract with raw material suppliers.
Personnel at regional offices for overseeing the smooth transit of goods.
Transparency and monitoring through deployment of IT – all transactions through ERP.
Efficient storage facilities – easy storage and retrieval.
Operations:
Semi-Automated Semi-Automated processing capability.
Ayurveda – special competence.
Apprentice Trainee Course – ensuring stable source of skilled manpower.
Kaizen & TPM team – continuous drive to improve efficiencies.
Outbound Logistics:
Distributors, all across the country.
Long term contracts with transporters – higher volume of business to transporters ensures competitive price.
Regional Sales Office linked through ERP application.
Efficient security system for prevention of any kind k ind of pilferage
Marketing and Sales: 3
Large network of dealers
Structured approach to understanding the requirements of individual customers – QFD’s conducted at regular intervals.
Clear identification of product requirements, r equirements, leading to development of innovative i nnovative products Quick assessment of the changing market dynamics and consumer
After Sales (Services):
Efficient collection of data from field and communication to the respective plants.
Pan India presence.
Large network of distributors & retailers.
Secondary Procurement:
E procurement initiative.
Long term relationships with a stable and loyal pool of suppliers.
Technology driven procurement – SAP and VCM. Localized supplier base at mfg. locations – low inventory levels.
Infrastructure:
Multi – Location facilities
Strong leadership – under the aegis of Hinduja Brothers
Best in class prototype building facilities
Technology – ERP application
Large product portfolio
Technology:
Approximately Approximately 2% of the annual profits of the company company invested in research and development.
Knowledge portal – helps employees keep abreast with the latest technologies.
Extensive prototype building and testing facilities.
Formal benchmarking process.
Human Resources:
Vast pool of technically competent managers. managers.
4
Focus on development of managerial capabilities -executive training programs at premier business schools.
Career advancement schemes.
Framework Porter’s five forces
The Threat of Entrants: The FMCG sector in India is characterized by a well-established distribution network, intense competition between the organized and unorganized segments and low operational cost. The easy availability of key raw materials, cheaper labor costs and presence across the entire value chain makes the FMCG sector an attractive area for new entrants. Moreover, as stated earlier, The FMCG sector is expecting a 100% increase in demand attracting attracting new producers towards it. But on the other hand the marketing and advertising costs in this industry are very high therefore economies of scale to be achieved becomes a very important part of being able to survive in the industry. According to estimates estimates based on China's current per capita consumption, consumption, the Indian FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. The dominance of Indian markets by unbranded products, change in eating habits and the increased affordability of the growing Indian population presents an opportunity to makers of branded products, who can convert consumers to branded products. Dabur should focus on product differentiation to maintain maintain its hold in the market. It is one of the most trusted names in the FMCG sector and enjoys a loyal customer base but as the demand increases (which it is expected to); the company will have to focus on aggressive marketing strategy to attract new customers. The changing Indian demographic profile clearly shows the emergence of 5
the 'youth' as dominant consumers. Currently, 75 per cent of consumers are under 35 years of age, and of this 54 per cent are less than 25 years old (Economic Times,2006). Times,2006). Dabur should focus on targeting at this segment of the market while it maintains its popularity amongst the middle aged consumers.
The Threat of Substitute products: According to Gerry Johnson (2006) Substitution reduces demand for a particular 'class' of products as customers switch to alternatives - even to the extent that this class of products or services becomes obsolete. This depends on whether a substitute provides a higher perceived benefit or value. In Dabur's case there is a threat of generic substitution which happens where w here products and services compete for disposable income. The disposable income income India is expected to rise, therefore increasing the demand in the the FMCG sector. Dabur sells a lot of varied products in all all price range; it should ensure that it offers quality products for all income groups. The power of buyers and suppliers: Gerry Johnson (2006), states that the next two forces can be considered together because they have similar effects in constraining the strategic freedom of an organization and in influencing the margins (and hence financial attractiveness) of the organization. Buying Power is likely to be high if there is a concentration of buyers. In India 8% of an individual's income is spent on personal care products. Dabur should try and maintain its brand v alue so as to be popular amongst all income groups. For an FMCG company the supply chain is i s a very important aspect, from buying new raw material to selling of finished goods to the retailer. This calls for maintaining good relationships with the suppliers to avoid incurring the cost of switching a supplier. Competitive Rivalry within the Industry: The 4 forces stated above impose the direct competitive rivalry between an organization and its most immediate rivals (Gerry Johnson et al. 2006). The expected high growth of the industry may affect rivalry. There may be a competition in achieving the market share which may increase rivalry amongst the competitors. Differentiation Differentiation is extremely important in a competitive industry. If a company doesn't differentiate differentiate its products from those available in the market the consumers tend to shift from one product to another leading to an increased rivalry between competitors. To avoid such circumstances Dabur at all levels should try and differentiate its products.
BCG Matrix The BCG matrix helps in identifying where the company is at present and the areas where the possibility of growth exists. This helps in forming suitable policies for dealing with competition. It was established by the Boston Consulting Group (BCG). Star: Babool, Vatika hair oil is the product that has a high market share in a growing market and generates high profits for the firm. Question Mark: Odonil exists in the growing market but without large market share Cash Cow: Chyawanprash, Hajmola, Hajmola, Real juice, Amla hair oil are all the cash cows for Dabur India 6
Limited with large market share and generate large profits. Dogs: Odomos are the products with a low market share in static or declining market
It is important for Dabur to invest more in the stars to gain share and market dominance. It is more likely that that Vatika and Babool will demand more investment in terms of advertising and selling both. Whereas Products like Odonil will eat investment and generate low profits. Investing here can be of high risk unless this potentially low margin activity activity is financed by the profits generated by other segments.
Environmental Analysis P.E.S.T Analysis- PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. An external environment analysis of Dabur can be carried out with the help of PEST analysis. This is an analysis of the Political, environmental, environmental, social and technological technological factors. Political factors: The Indian government has abolished licensing for almost all food and agro-processing industries except for some items like alcohol, cane sugar, hydrogenated animal fats and oils etc., and items reserved for the exclusive manufacture in the small scale industry (SSI) sector. This has resulted in a boom in the FMCG market through market expansion and greater product opportunities. India has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting in an environment that fosters growth. 100 per cent export oriented units can be set up by 7
government approval and use of foreign brand names is now freely permitted. Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCB's) (OCB's) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). Wide-ranging fiscal policy changes have been introduced progressively. Excise and import duty rates have been reduced substantially. Many processed food items are totally exempt from excise duty. Customs duties have been substantially reduced on plant and equipment, as well as on raw r aw materials and intermediates, especially for export production. Various states governments like Himachal Pradesh, Uttaranchal and Jammu & Kashmir have encouraged companies companies to set up manufacturing facilities in their regions through a package of fiscal incentives. Indian Government has invested largely in the social sectors, agriculture and infrastructure. Large investments have also been made in human development indicators like primary healthcare and primary education, in which it currently lags behind. Economic Factors: Per capita consumption in most of the FMCG categories in India is low as compared to both the developed markets and other emerging economies. economies. A rise in per capita consumption, with improvement in incomes and affordability and change in tastes and preferences, may lead to an increase in the demand of goods in the FMCG sector. However, India is one of the largest economies in the world in terms of purchasing power power and has a strong middle class base of 300 million which is expected to increase further. Keeping in mind the huge potential market the demand in FMCG sector is expected to increase by 100% by 2015; driven by the rise in the share of the middle class. The BRIC's report indicates that India's per capita disposable income, income, is currently at US$ 556 per annum, and is expected to rise to US$ 1150 by 2015. The real GDP growth in the country is calculated in the range of 7.5-8.0 per cent during the year 2006-07.The time gap in the period of 2001-06 is considered as the best time for India's business leaders. The fast rising economic performance of Indian Economy has created an environment of optimism on the part of the investors to invest more. Liberalization and opening of the economy economy has contributed to higher global awareness amongst consumers. Additionally, sustained economic growth has translated into increase in income levels and affluence. In the last ten years (1996-2006) (1996-2006) the Rich and the Consuming classes have grown by 416 per cent and 179 per cent respectively. Social Factors: Around 70 per cent of the total households in India (188 million) reside in the rural areas. The total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 200910. This presents the largest potential market in the world. Even on an international scale, total consumer expenditure on food in India at US$ 120 billion is amongst amongst the largest l argest in the emerging markets, next only to China (Appendix, 10). Rapid urbanization, increased literacy and rising per capita income, have all caused rapid growth and change in demand patterns, leading to an explosion of new opportunities. Around 45 per cent of the population in India is below 20 years of age and the young population is set to rise further. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset. Technological Technological Factors: With the growing rate of literacy in India the consumers are becoming internet savvy. With emarkets evolving rapidly the firms should make internet as a medium for selling goods. Moreover with technological developments like the EDI (Electronic Data Interchange), firms need to be up-todate to stay ahead of the competition. competition. Information Technology plays a big role in the organization these days. Firms are investing large amounts of money in hardware and software to ensure faster operations and more efficient working of its operations.
8
Dabur for instance invested Rs. 15 crores in hardware and software which now helps its godowns and branches to be directly linked with its headquarters through direct emails. Therefore the information which earlier took 15 days to be process and made available is now done in a day's time.
Evaluation of options Pros and cons of going global and the different transaction costs involved Pros-The major advantage of global sales is the expanded potential market. Cons- It will have to manage the process and logistics, and might be costly to set up geographic distribution and global marketing and sales Different Transaction costsAs the value-added increases, the cost of transaction also increases Direct marketing channels—low value-added; low cost of transactions e.g. e-commerce, telemarketing Indirect marketing channels—medium value-added; medium cost of transactions e.g. retail stores, distributors Direct sales channels—high value-added; high cost of transactions e.g. own sales force
Options Dabur has three options to go overseas. 1. Acquisitions 2. Green Field Venture 3. Joint Venture As mentioned above high transaction costs and starting from scratch and developing the entire value chain overseas is a costly affair. The best option would be to go for Joint Venture as it would have the following advantages
Leveraging Resources
With the globalization, access to labor, capital and technological technological resources have become driving forces for modern businesses to aim to achieve ‘economies of scale.’ Today, business commitments
are far too large to be executed by a single company. From a wider perspective, the conduct of business mandates a huge pool of resources extending from massive financial backup to plenty of skilled manpower. Cross-border business projects are all the more demanding and the best solution is to either outright acquire or share them by entering into a JV. Co-operation Co-operation is a great way of reducing research and manufacturing costs while limiting exposure.
Exploiting Capabilities and Expertise
9
Parties to a JV may have complementary complementary skills or capabilities to contribute to the JV; or parties may have experience in different industries which it is hoped will produce synergistic benefits. The basic tenet of a JV is the sharing of capabilities and expertise of both the partners on mutually agreed terms. Such sharing grants a competitive advantage to the JV partners over other players in the market.
Sharing Liabilities
A JV also offers parties an opportunity to jointly manage the risks associated with new ventures. Through a JV they can limit their individual exposure by sharing the liabilities. When the liabilities and risks are shared the t he pressure on each individual partner is correspondingly reduced. It reduces the risks in a number of ways as the business activities of the JV can be expanded with smaller investment outlays than if financed independently.
Market Access
JVs are the most efficient mode of gaining better market access. Companies utilize JV agreements to expand their business into other geographies, geographies, consumer segments and product markets. In the case of a cross-border JV, the involvement of a locally-based party may be necessary or desirable in countries where it is difficult for a foreign company to penetrate the market or where the local law limits the ownership structure by foreigners. For instance, in India, certain market sectors remain restricted for foreign investment and a local partner with a certain shareholding in the company is a regulatory necessity for commencing business and making investments. These restrictions are discussed in further detail in a later section.
Flexible Business Diversification
JVs offer many flexible business diversification opportunities to the partners. A JV may be set up, as a prelude to a full merger or only for part of the t he business. It offers a creative way for companies to enter into non-core businesses while maintaining an easy exit option. Companies can also resort to JVs as a method to gradually separate a business from the rest of the organization and eventually, sell it off. In certain circumstances, JVs may be set up with strategic investors in the process of entering into a new market so as to initially provide the foreign participant local infrastructure and guidance but with a view to integrate the operations of the JV into the main company in the future. In this situation, the t he foreign participant may choose to acquire the local participant’s interest once the venture is up and running. This can be highly beneficial to both parties as the foreign party is able to establish itself in the local market while the local party gets a liquid exit.
10
Financial Statements (Source MoneyControl) Balance Sheet Dabur India-Balance Sheet ------------------------------------- in Rs. Cr. ------------------------------------Mar Mar Mar Mar '11 '10 '09 '08 12 12 12 12 mths mths mths mths
Mar '07 12 mths
Sources Of Funds Total Share Capital
174.07
86.76
86.51
86.4
86.29
Equity Share Capital
174.07
86.76
86.51
86.4
86.29
Share Application Money
0
0.14
0
0
0
Preference Preferenc e Share Capital
0
0
0
0
0
927.09
662.48
651.69
441.92
316.9
0
0
0
0
0
1,101.16
749.38
738.2
528.32
403.19
17.57
24.27
8.26
16.45
19.28
235.78
81.8
130.72
0.24
0.26
253.35 1,354.51
106.07 855.45
138.98 877.18
16.69 545.01
19.54 422.73
Gross Block
766.88
687.23
518.77
467.93
404.3
Less: Accum. Depreciation Depreciat ion
269.32
236.28
210.45
189.77
168.97
Net Block Capital Work in Progress
497.56 11.92
450.95 23.31
308.32 51.71
278.16 16.26
235.33 3.71
Investments Investmen ts
519.23
348.51
232.05
270.37
145.35
Inventories Inventor ies
460.58
298.44
261.72
201.15
157.37
Sundry Debtors
202.46
130.48
112.36
100.46
60.98
26.08
48.8
32.16
67.36 6 7.36
49.04 4 9.04
Total Current Assets
689.12
477.72
406.24
368.97
267.39
Loans and Advances
461.81
348.94
455.65
206.94
129.19
Fixed Deposits
166.33
115.11
111.53
0.9
1.21
1,317.26
941.77
973.42
576.81
397.79
0
0
0
0
0
539.05
471.73
381.87
345.16
301.78
535.36 1,074.41
440.1 911.83
315.1 696.97
265.41 610.57
77.49 379.27
242.85
29.94
276.45
-33.76
18.52
82.95
2.74
8.64
13.95
19.82
Total Assets
1,354.51
855.45
877.17
544.98
422.73
Contingent Liabilities
1,075.89 173.48
174.15
171.24
153.25
8.53
6.11
4.67
Reserves Revaluation Revaluatio n Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities Liabili ties Application Of Funds
Cash and Bank Balance
Total CA, Loans & Advances Deferred Credit Current Liabilities Liabilit ies Provisions Total CL & Provisions Provision s Net Current Assets Miscellaneous Expenses
Book Value (Rs)
6.33
8.64
11
Cash Flow Cash Flow of Dabur India ------------------------------------- in Rs. Cr. ------------------------------------Mar '11 12 mths
Mar '10 12 mths
Mar '09 12 mths
Mar '08 12 mths
Mar '07 12 mths
Net Profit Before Tax
596.26
527.03
425
365.18
284.22
Net Cash From Operating Activities Activit ies
338.61
481.49
323.57
313.29
234.43
-222.22
-267.54
-238.38
-179.77
-60.57
Net Cash (used in)/from Financing Activities
-87.89
-201.88
-9.77
-119.3
-168.06
Net (decrease)/increase (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Equivale nts
28.5 163.91
12.07 151.84
75.42 68.26
14.22 54.04
5.79 44.45
Closing Cash & Cash Equivalents Equivalen ts
192.41
163.91
143.68
68.26
50.25
Net Cash (used in)/from Investing Activities
12
Profit & Loss Statements Dabur India-Profit & Loss account ------------------------------------- in Rs. Cr. ------------------------------------Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
12 mths
12 mths
12 mths
12 mths
12 mths
Income Sales Turnover Excise Duty
3,305.42 2,891.00 2,435.85 2,128.02 1,782.08 30.99
23.58
27.52
34.39
36.93
3,274.43
2,867.42
2,408.33
2,093.63
1,745.15
39.16 78.31
27.95 9.68
29.3 38.89
17.92 3.04
12.46 22.19
3,391.90
2,905.05
2,476.52
2,114.59
1,779.80
1,740.68
1,393.97
1,271.74
1,026.98
800.46
42.39
35.43
36.63
38.42
30.59
230.84
212.34
167.32
149.69
118.66
25.21
22.74
17.59
15.59
8.65
Selling and Admin Expenses
589.09
557.26
425.16
400.82
456.11
Miscellaneous Expenses Preoperative Exp Capitalised
100.15 0
103.84 0
84.68 0
75.32 0
48.2 0
2,728.36
2,325.58
2,003.12
1,706.82
1,462.67
Operating Operatin g Profit
624.38
551.52
444.1
389.85
304.67
PBDIT
663.54
579.47
473.4
407.77
317.13
12.93
13.28
14.47
10.92
4.43
650.61
566.19
458.93
396.85
312.7
37.73
31.91
27.42
25.75
21.98
16.6 596.28
5.66 528.62
3.94 427.57
5.67 365.43
6.49 284.23
0.25
-0.19
-0.72
-0.86
-0.13
PBT (Post Extra-ord Items)
596.53
528.43
426.85
364.57
284.1
Tax
124.85
93.7
51.44
48.4
32.15
Reported Net Profit
471.41
433.33
373.55
316.77
252.08
Total Value Addition
987.68
931.61
731.38
679.85
662.21
Preference Dividend
0
0
0
0
0
200.19
173.6
151.39
129.6
122.13
32.82
29.5
25.73
22.03
17.13
Net Sales Other Income Stock Adjustments Adjustment s Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses
Total Expenses
Interest PBDT Depreciation Depreciati on Other Written Off Profit Before Tax Extra-ordinary items
Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs)
17,407.24 8,675.86 8,650.76 8,640.23 8,628.84
Earning Per Share (Rs) Equity Dividend Divide nd (%)
2.71 115
4.99 200
4.32 175
3.67 150
2.92 175
Book Value (Rs)
6.33
8.64
8.53
6.11
4.67
13
Looking at above financial statements of Dabur for last five year we can conclude that it on growth path and this trend seems to follow suit of expansion in both domestic and overseas market.
Conclusion and Recommendations Looking at the large Indian expatriate population spread across the globe and large demand for Ayurvedic products we can assume Dabur certainly has a very big advantage which can be exploited to the maximum .Also the FMCG sector in India is expected to grow at a tremendous speed. As the t he industry sees fast growth the entry of new players will be all set to follow. Dabur as of now enjoys customer loyalty and is well established in the market. But for the years to come the company will face fierce competition. Dabur seems to realize that and therefore as discussed above is planning on aggressive expansion policies. policies. This will lead to an increase in market share and brand recognition worldwide (The best and cost efficient way would be a Joint Venture). But in the entire process Dabur should not forget its existing market and constantly work towards improving it like it has for the past years. All its core brands, viz. Dabur, Vatika, Anmol, Real and Hajmola enjoy tremendous tremendous recall value for consumers, and provide with a platform to leverage on going forward. Dabur should aim on maintaining their growth while expanding its business worldwide. While geographical expansion and new product initiatives to take care of top line growth for the next few years, esourcing initiatives coupled with higher in-house production would help enhance margins going forward.
14
