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Dabur India Limited16
Management Discussion and Analysis
-4
-2
0
2
4
6
8
ServicesIndustryAgricultureGDP
Chart A : Sectoral Growth (%)
5.6
4.4
5.7
-3.1
3.3
6.16.8 7.1
2001-022002-03
2002-03 was a mixed year for the Indian economy. Theindustrial and manufacturing sectors staged a modest
recovery. The former grew by 6.1 per cent and the latter by
5.7 per cent, compared to 3.3 per cent and 2.7 per centrespectively, in 2001-02. However, a decline of 3.1 per cent
in agricultural output resulted in GDP growing by just
4.4 per cent in 2002-03, as against 5.6 per cent growth in
2001-02. Chart A gives the data.
To combat these trends and protect their market share, mos
companies have resorted to volume discounts, freebies
two-for-one and other consumer promotion schemes. In
addition, well-established players in the industry are facingtough competition from new entrants as well as regiona
companies, who are making inroads into the market with
aggressive price offerings. All these factors are putting furthe
pressure on the sales realisations as well as margins of almos
all FMCG companies.
Your Company had to perform under these demanding marke
conditions. Given the unfavourable environment, we have
reasons to be satisfied with our performance. Here are some
of the salient features of our financial performance in 2002-03
Revenue from operations increased by 5.9 per cent
from Rs.1,163.2 crores in 2001-02 to Rs.1,232.3 crores
in 2002-03.
Profit Before Depreciation, Interest and Taxes (PBDIT
grew by 11.8 per cent, from Rs.120.5 crores in
2001-02 to Rs.134.7 crores in 2002-03.
The operating profit margin ratio of PBDIT (less othe
income) to sales increased from 9.2 per cent in
2001-02 to 10.3 per cent in 2002-03.
Interest outgo fell by 28.7 per cent, from Rs. 24.0 crores
in 2001-02 to Rs.17.1 crores in 2002-03.
Profit After Tax (PAT) grew by 32.1 per cent, from
Rs. 64.4 crores in 2001-02 to Rs. 85.1 crores in 2002-03
Return on Capital Employed (ROCE) grew from 14.5
per cent in 2001-02 to 19.7 per cent in 2002-03.
Return On Net Worth (RONW) increased from 16.2
per cent in 2001-02 to 20.8 per cent in 2002-03
The test of a good company lies in its ability to produce
superior results in tough times. A benchmarking exercise
with 7 leading companies in the FMCG space (including
Dabur), whose financial results are currently available, shows
that Daburs sales and profits growth have outstrippedaverage sales and profits growth of the sample for the yea
ended 31st March, 2003. As Chart B shows, as against the
samples average sales growth of (-)2.4 per cent, we have
grown by 5.9 per cent. Moreover, as against the average
post-tax profit growth of (-)0.9 per cent, our post tax profi
has grown by 32.1 per cent. As a matter of fact, Dabur ranks
best in terms of profit growth.
Note : All figures are CSO estimates for April-March.
Unfortunately, the revival witnessed in the industrial and
manufacturing sectors has not extended to the Fast Moving
Consumer Goods (FMCG) sector, which constitutes 85 per
cent of your Companys sales. For the third year in
succession, this sector has failed to live up to its name, and
has witnessed sluggish to negative growth across most
product categories.
The dismal performance of the agriculture sector a key
driver of rural demand has undoubtedly had an adverse
impact on FMCG sales in the second half of 2002-03. In
addition, the uncertainty about the implementation of the
state Value Added Tax (VAT) resulted in primary sales suffering
a setback in the last two months of 2002-03. Apart from
these two factors, there are certain long-term economic and
social trends at play, which need to be examined while
discussing the sustained slowdown in the sector.
The growth of per capita income in the country has slowed
down from 6 per cent in 1994 to 3.4 per cent in 2002. Inthe same period, growth of Personal Disposable Income
(PDI) has reduced much faster from 15 per cent to 5.3
per cent. Slowdown in the growth of PDI has resulted in
sluggish off take of personal care and other FMCG
products, as well as a growing trend towards down trading
to cheaper and lower value brands, particularly in the
necessity product categories.
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Management Discussion and Analysis
Annua l Repor t 2002-0
miscellaneous products. Till 2001-02, we had kep
Ayurvedic specialities and miscellaneous products separate
from our FMCG product portfolio. However, in view of the
imminent de-merger of the FMCG and Pharmaceuticabusinesses, it has been decided to consolidate all the
businesses that will remain in the FMCG company unde
one head. The business has grown by 4.8 per cent from
Rs.1,000.2 crores in 2001-02 to Rs.1,048.5 crores in
2002-03. The part of the business consisting of only
Personal care and Health care products grew by 6.5 pe
cent in 2002-03 over 2001-02. Chart C gives a three-yea
comparison of FMCG sales.
-5
0
5
10
15
20
25
30
35
Chart B : Dabur vis-a-vis a sample of
7 FMCG Companies, 2002-03 (% Growth)
5.9
-2.4
32.1
-0.9
DaburFMCG Industry
Sales Profit After Tax
Notwithstanding these milestones, we are conscious of the
fact that we are competing in an extremely challenging
environment. We have, therefore, taken several new initiatives
in the year under review, which we believe will instil greater
focus within the organisation, accelerate growth and create
value for our shareholders. We would like to highlight threeof them.
First, subject to approval from shareholders and
appropriate authorities, we have decided to de-merge
our Pharmaceutical business from Dabur India, and
transfer it into a new company Dabur Pharma Limited.
Consequently, Dabur India Limited will be a focused
FMCG company.
Second, we have re-engineered our FMCG business
with a view to leverage synergies and scale, and to
reduce costs.
Third, we have recast our strategy for both FMCG and
Pharma businesses. As part of the new strategy for the
FMCG business we are streamlining our brand
architecture with the objective of focusing on five major
brands and enhancing their brand equity.
These and other strategic initiatives will be discussed at
length in the course of this chapter. We will begin with a
review of products and markets for these constitute the
core of your Company.
MARKETSA) FMCG
The FMCG business generated Rs.1,048.5 crores of sales,
and accounted for 85 per cent of the total sales of your
Company. During 2002-03, this business primarily
consisted of Personal care products, Health care products,
FMCG exports, Ayurvedic specialit ies, and some
0
200
400
600
800
1000
1200
2002-032001-022000-01
Chart C : FMCG Sales (in Rs. Crores)
498.2 517.8
336.7340.1
82.658.4
68.677.1
567.5
329.7
104.382.4
Personal Care Health CareAyurvedic Others
PERSONAL CARE PRODUCTS
This business accounted for 46.1 per cent of Daburs tota
sales, and 56 per cent of the Companys total FMCG sales
in 2002-03. Notwithstanding sluggish market conditions
Daburs Personal care products sales grew by 9.6 per cen
from Rs.517.8 crores in 2001-02 to Rs.567.5 crores in
2002-03. The Personal care products portfolio of the Company
primarily consists of hair care, oral care products and skin
care products, and honey. Chart D gives sales break-up o
the personal care products portfolio.
Shampoo
Given the low incidence of using shampoo for hair washing
in India, shampoos have considerable head room for growth
although launch of new products at lower price points and
sustained downtrading have slowed the value growth of thi
segment.
Daburs Vatika range of shampoos, comprising of hai
conditioning shampoo and an anti-dandruff shampoo, fared
well during the year and were important growth drivers fo
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Dabur India Limited18
Management Discussion and Analysis
the Company. The combined growth of the Vatika range
was 17.6 per cent. Overall, your Company was able to
increase its market share in the hair shampoo segment,
while keeping prices stable and margins intact. We plan to
launch a new shampoo in 2003-04 and, going forward, we
are confident of maintaining our high growth in this segment
of the market.
Hair oil
The hair oil category witnessed a substantial increase in raw
material prices during 2002-03. Given that Daburs prices in
this category are higher than those of the competition, the
input price hike could not be passed on to the consumer.
Consequently, gross margins in this business came under
severe pressure. Nevertheless, during the year under review,
our leading brand in the hair oil category, Dabur Amla Hair
Oil, witnessed a strong 7.8 per cent growth in sales. Wehave recently launched a new advertising campaign for this
product.
Notwithstanding the good performance of Dabur Amla Hair
Oil, we are conscious of the fact that this segment as a
whole is not growing fast enough. We plan to inject a growth
momentum into this business through new product launches.
Besides the launch of a new cooling hair oil, we propose to
launch a hair oil for the mass market in 2003-04.
Oral care
Daburs Lal Dant Manjan (LDM) is the second largest brandin the toothpowder segment. While this product category
as a whole witnessed a decline during 2002-03, our brand
did well. We are planning a new advertising campaign for
LDM in 2003-04, and we hope to grow sales and further
increase our market share in this segment. In an important
initiative in the oral care segment, your Company launched
a new toothpaste during the year under review. This
toothpaste is based on the LDM platform, and is targeted a
LDM users who want to upgrade to toothpaste, as well as
lapsed LDM users who have migrated to toothpaste. You
Company is aware that the toothpaste market is highlycompetitive, and we will follow a calibrated and judicious
strategy to secure a niche in this category.
Honey
Dabur Honey is the largest Indian brand in the organised
sector. During 2002-03, this product witnessed a volume
growth of 14.8 per cent, and a value growth of 21.4 pe
cent. However, there was more than a 50 per cent increase
in the price of sourcing raw honey, which had an adverse
impact on the margins of the product.
Growth prospects
While we are satisfied with our performance in the Persona
care products business, we believe there is considerable
potential for growth in this market. None of our products
has market share in excess of 30 per cent in their categories
Indeed, with the exception of Dabur Amla Hair Oil, LDM and
Dabur Honey, none has market shares of more than 10 pe
cent. Thus even in a scenario of low overall growth, we wil
strive to increase our market shares in all these segments
We will also attempt to drive the Companys growth in the
Personal care products category through innovations and
new product launches. In 2003-04, apart from the new
shampoo and hair oil launches mentioned earlier, the
Company plans to introduce Skin care products under the
Vatika brand. Going forward, we foresee Hair care and Skin
care categories to be major growth drivers for the Company
and we will roll out new initiatives to consolidate our presenc
in these markets.
HEALTH CARE PRODUCTS
The Health care products business of your Company grew
by 1 per cent from Rs. 336.7 crores in 2001-02 to Rs. 340.
crores in 2002-03, and accounted for 27.5 per cent of the
Companys sales. Daburs product portfolio in this segmenincludes brands such as Dabur Chyawanprash, Hajmola and
Pudin Hara, which are market leaders in their respective
product categories. Chart E gives the sales break up of the
Health care products portfolio. Sales in this business were
subdued during the year as a result of failure of monsoon
as well as uncertainty regarding implementation of VAT in
the last two months of the year.
Chart D : Sales Composition of
Personal Care Business
Hair Oil
Shampoo
Oral Care
Honey
Others
50%
12%
27%
7%
4%
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Management Discussion and Analysis
Annua l Repor t 2002-0
While overall sales growth of the health care product portfolio
remained subdued during 2002-03 as a result of sluggish
market conditions, it is important to note that the overall ne
contribution from this business (inclusive of sales andmarketing costs) increased by over 30 per cent. This wa
due to greater procurement efficiencies and bette
management of the Companys marketing spend.
Growth prospects
As the above discussion shows, some of the Company
low volume products fared well in 2002-03, and achieved
sales as well as market share growth during the year
However, the sales of some of our major brands, such as
Dabur Chyawanprash, Pudin Hara, and Hajmola, did no
register significant increases. Some may argue that these
brands are market leaders in mature product categories and
as such, it is inevitable to see slackening growth. We a
Dabur do not agree with this contention. We are of the view
that there is still considerable potential to grow these produc
categories, and we will strive to increase our sales as we
as market shares in them.
We are revamping the communication mix of Dabu
Chyawanprash, and a new, contemporary, packaging will be
launched in 2003-04. New variants of Pudin Hara, and
Hajmola, too, will be launched in 2003-04.
Our outlook for the Health care product portfolio is
positive. Apart from growing our existing brands, brand
extensions, and introduction of new products are in the
pipeline. We are also looking at expanding our health
supplements portfolio, and propose to develop the Over
The-Counter (OTC) Health care business in a significan
manner. New OTC products will be launched during
2003-04, and we expect this business to be a key growth
driver.
KEY INITIATIVES
Before concluding our discussion on the Personal care and
Health care businesses, we would like to highlight two key
initiatives taken by your Company during 2002-03. As
shareholders are aware, brands are the lifeline of an FMCG
company, and Dabur is fortunate to have developed brands
which have strong equity with consumers. To leverage this
brand equity, and to align our brands with our growth
objectives, we are going to streamline our brand
architecture. We have decided to focus on five key brands
Health supplements
In this category, Dabur Chyawanprash maintained its market
share at 65 per cent, despite the launch of two new
competing products. However, the Chyawanprash category,
as a whole registered a negative growth during the year due
to an extended summer, failure of the monsoons and a
truncated winter. In line with the general trend in the industry,
our product too experienced a sales decline. This decline
was to a certain extent arrested by a strong showing in the
second half of the year, when Dabur Chyawanprash posted
a three per cent growth.
Another health supplement, Glucose D fared well during the
year, and was able to increase its market share from 9.4 per
cent in 2001-02 to 11.6 per cent in 2002-03. Driven by its
first ever-advertising campaign, this product registered a 32per cent sales growth during the year.
Digestives and Confectionary
Hajmola sales witnessed a marginal decline of less than
1 per cent, even as its market share remained stable at 79
per cent. Sale of the Pudin Hara group of products increased
by 6 per cent, with Pudin Hara liquid growing by 26 per cent
as a result of enhanced above-the-line advertising activity. In
the confectionary segment, Hajmola candy witnessed a
negative sales growth as a result of new competing launches
and increased competition in the segment.
Baby oil
Dabur produces the largest baby oil in the country Lal Tail
which recorded an 18 per cent sales growth. Baby Olive
Oil, which was launched in 2001-02, too, fared well during
the year under review, and finished its first full year with a
market share of 1.4 per cent. We plan to further consolidate
our position in this segment.
Chart E : Sales Composition of
Health Care Business
HealthSupplements
Digestives
Baby Care
Confectionary
Others
45%
30%
14%
8%
3%
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Dabur India Limited20
Management Discussion and Analysis
Dabur, Vatika, Hajmola, Anmol and Real. Fresh investments
will be made in further strengthening their brand equity,
and the advertising strategy of your Company will
concentrate on these brands.
FMCG EXPORTS
Exports of Dabur increased by 60.7 per cent from Rs.15
crores in 2001-02 to Rs.24.1 crores in 2002-03. These figures
do not include the reorganised Middle East exports, which
has been transferred to a franchisee.
In the year under review, exports to Russia picked up with
introduction of more products and expansion in distribution
network. Dabur Boro Glow was successfully introduced and
in another initiative, new products under the brand name o
Dr. Burman were introduced through multi-level marketing
channels. Dabur plans to launch other products under its
own brand name in Russia. In UK and other European
markets, Vegecaps were introduced in the nature care range
of products. Hair oils, Shampoos and Hajmola were exported
to Afghanistan. Initiatives were also taken to market the
Companys products in Australia, New Zealand and Wes
Indies.
The Company also made significant progress towards
entering the lucrative North American markets. Distributors
have been appointed, and marketing of products to the ethnic
Indian segment have begun.
In another important development, Dabur is entering into a
joint venture with a local partner to manufacture and marke
our products in Bangladesh. Dabur will hold a majority stake
in this joint venture, and we expect Bangladesh to become
an important market for our products.
In 2003-04, the Company plans to continue with its focus on
Russia and CIS countries along with Afghanistan, West Indies
and the Asia-Pacific region. Efforts will also be made to
make further in-roads into neighbouring countries, and
explore new markets.
Dabur has identified exports as a major thrust area for the
future. An international business division has been set up
within the Company to promote exports, and we expect this
business to grow steadily in the coming years.
AYURVEDIC SPECIALITIES
The Ayurvedic specialities range of products of Dabur used
for the treatment of common as well as serious ailments
can be categorised into Asavs, classicals and branded ethica
products. This business saw a growth of 7.1 per cent from
Rs.77.1 crores in 2001-02 to Rs.82.6 crores in 2002-03.
Vatika and Anmol will be our flagship brands for the Personal
care products portfolio, and most of the diversification into
new product categories, such as skin care, will be spearheaded
by them. While Vatika will be positioned as a premium brand,
Anmol will be positioned as a mass market, value for money
brand. Hajmola will be positioned as a digestives and
confectionary brand, while Real will be the umbrella brand for
juices and food, aimed at upmarket urban consumers.
Dabur will be the mother brand of the Company. Given the
salience and the recall value of the Dabur brand name, it will
be spread across the FMCG space, with particular emphasis
on Health care products.
The second key initiative taken in 2002-03 was the decision
to re-organise our FMCG business to leverage synergies
and scale, and to reduce costs. Consequently, the two
erstwhile Strategic Business Units (SBUs) of the Company
the Family Products Division (Personal care products) and
the Health Care Products Division have now been merged
into one SBU. Personal care products and Health care
products have significant overlap in terms of distribution
and retail networks, and these will now be distributed
through a common arrangement. This will result in synergies
and cost savings. Moreover, the integration will assist inbetter management of finished goods inventory, and give
a boost to the Companys effort to focus on secondary
sales.
We are confident that these initiatives, along with the slew
of new product launches and aggressive product extensions,
will inject a growth impulse into Dabur.
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Management Discussion and Analysis
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While Asavsand classical product categories have reached
maturity stage, branded ethical products have a greater
opportunity of growth. Therefore, the Company has been
focusing on the last category by increasing the product rangeand by introducing these in newer delivery systems. New
product launches are backed by clinical trials.
To promote its Ayurvedic specialities, Dabur has followed
the strategy of active interaction with the Ayurvedic
community doctors, BAMS (Bachelor of Ayurvedic Medical
Sciences), and vaids who prescribe these products. Factory
visits have been organised for these professionals to make
them aware of our high standards of processing and
manufacturing, as well as our commitment to quality.
DABUR FOODS LIMITED (DFL)
Dabur Foods Limited is a 100 per cent subsidiary of Dabur
India Limited, and is engaged in the marketing of natural
fruit juices and ethnic cooking pastes. The Companys brand
portfolio includes Real, Hommade, Lemoneez and Capsico,
of which Real and Hommade have been identified as the
growth drivers of the Company. In 2002-03, Dabur Foods
recorded sales growth of 29.8 per cent to Rs.69.2 crores.
B) PHARMACEUTICALS
The Pharmaceuticals business of your Company grew by 12.8
per cent from Rs.162.9 crores in 2001-02 to Rs.183.8 crores
in 2002-03. Dabur has a strong presence throughout the entirePharmaceutical spectrum ranging from cutting edge origina
research to manufacturing of Active Pharmaceutical Ingredients
(APIs) and formulations, to sales and distribution.
As shareholders may be aware, we have taken a strategic
decision to concentrate on the Oncology (anti-cancer
business, and we are the market leader in this segment in
India, with a more than 20 per cent market share. We have
also established a significant presence abroad, and are
currently present in over 25 overseas markets.
In the domestic market, our branded formulations business
grew by 11.1 per cent in 2002-03. During the year unde
review, your Company launched three new Oncology
products in the domestic market :
Thalix, Indias first thalidomide brand, was introduced
in October 2002. Thalidomide has extensive clinica
efficacy in multiple myeloma (a kind of blood
malignancy) and leprosy. With its introduction at an
affordable price, this launch has been able to bridge
the need gap which existed in the management of this
disease. An extensive patient education programme has
been introduced to help the physicians and patients in
safe handling of the drug. Thalix is available as 50 mg
and 100 mg capsules.
Oxitan, an oxaliplatin brand, has been indicated fo
treatment of coloroctal cancer. Unlike other oxaliplatin
brands, Oxitan offers the unique advantage of being
available as a ready to use solution, thus avoiding
complications related to reconstitution. Oxitan is
available as 50 mg and 100 mg vials injection.
Trozet (letrozole) is indicated for the treatment o
hormone responsive breast cancer, and offers significan
advantages over conventional treatment in terms o
efficacy and survival. This introduction will furthe
strengthen our presence in the breast cancer therapeuti
segment. Trozet is available as a 2.5 mg tablet.
In addition to new domestic product launches during
2002-03, Dabur expanded its overseas presence by making
a foray into the generic markets of Mexico, Vietnam and
Myanmar. We have emerged as the largest generic paclitaxe
seller in Philippines, Thailand, and Malaysia.
During the year under review, two new products were
introduced in the Hommade range tomato puree and
coconut milk. In the Real range, two new flavours Litchi
and Guava were launched, taking the total variants to
eight. Sales of Real grew by 25 per cent between 2001-02
and 2002-03. In addition to retail consumers, the marketing
and sales initiatives of the Company were directed at
boosting institutional sales to hotels, restaurants and
caterers. In 2003-04, the Company plans to sharpen its
marketing strategy and modify its packaging to align it with
the tastes like eating a fruit concept that it intends to
project for the Real brand.
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Dabur India Limited22
Management Discussion and Analysis
In July 2002, with the objective of making the Pharmaceutical
business of the Company more focused and efficient, all
the operations and functions of the Pharmaceutical division
were separated from the FMCG operations of the Company.
The entire Pharmaceutical division was relocated in one office
premises, and a dedicated team was created to manage
support functions such as operations, purchase, finance,
quality assurance, and supply chain.
Subsequent to this virtual de-merger, the Board of Directors
of your Company decided to de-merge the Pharmaceutical
business from Dabur India and transfer it into a new
company, Dabur Pharma Ltd. with effect from 1st April, 2003,
subject to approval from shareholders and appropriate
authorities. The advantages and implications of the de-merger
have been discussed in detail later in this chapter.
In our last year Annual Report, we had stated that we werein the process of formulating a well-integrated growth
strategy for the Pharmaceutical business, and had appointed
Accenture to assist us in this strategy formulation. Our long-
term growth strategy was finalised during 2002-03, and
contains three key components.
First, we will become a major player in the global
Oncology generics business.
Second, in the field of original research, we will focus
on developing New Chemical Entities (NCEs) and New
Drug Delivery Systems (NDDS) in the Oncology
therapeutic segment.
Third, we will grow our domestic branded generics
business without committing huge investments into it.
At present, exports account for around 36 per cent of
the Companys Pharmaceuticals sales, and the new
Pharmaceutical company will aggressively pursue
opportunities both in highly regulated as well as less
regulated markets. We believe that there will be a $12 to
$15 billion opportunity in the global generic Oncology
market from 2005 to 2012, and we are getting poised to
be a recognised player in this space. Dabur has obtained
marketing approvals for Oncology products in many key
export markets of Asia, CIS, Central and South America,
and Africa. Over the next few years, we will increase our
global footprint and set up marketing networks
throughout the world.
The US market constitutes the ultimate destination for all
Pharmaceutical companies. During 2003-04, Dabur Pharma
will make its first Abbreviated New Drug Applications (ANDA
filings in the US. Para 4 filings, which give the first to market
advantage in the US generics market, will also form a par
of our US growth strategy. The formulation manufacturingfacility of our UK-based wholly owned subsidiary, Dabu
Oncology Plc, is approved by MCA, UK. We intend to apply
for US FDA approval both for our UK plant, as well as the
API manufacturing facility at Kalyani, West Bengal. In addition
to the US, we also have aggressive growth plans for the
European market.
As Dabur Pharma grows in the overseas generics market
we will use the export earnings, along with domestic profits
to invest in original research. Our initiatives in the research
and development field have been discussed in detail later in
this chapter.
OPERATIONS
MANUFACTURING
Dabur has six manufacturing facilities at Sahibabad (Utta
Pradesh), Baddi (Himachal Pradesh), Alwar (Rajasthan), Katn
(Madhya Pradesh), Kalyani and Narendrapur (West Bengal)
The APIs and formulations of the Company are manufactured
in-house at Kalyani, Sahibabad and Baddi. Fifty per cent o
FMCG products, comprising the Health care products and
Ayurvedic specialities portfolio, are manufactured in-house
while the Personal care products portfolio, which accounts
for the remaining 50 per cent, are out-sourced to eigh
contract manufacturers.
Your Company is in the process of setting up a
manufacturing facility at Jammu, for manufacturing Persona
care products. Jammu has been selected as the new site
in order to avail fiscal benefits offered for setting up
manufacturing facilities in that location. This plant will be
commissioned in 2003-04.
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Management Discussion and Analysis
Annua l Repor t 2002-0
Your Company has been giving considerable emphasis on
improving manufacturing and operational efficiencies. During
the year under review, we focused on enhancing productivity
of capital and existing assets, improving plant efficiencies inthe existing manufacturing facilities and following more
stringent quality control and supervision norms at out-
sourcing locations. Standardisation of processes, tight budget
controls and energy audits constitute some of the other
initiatives undertaken by the Company to improve its
operational performance.
As a result of these measures, operating profit margin
(excluding other income) of the Company has improved from
9.2 per cent in 2001-02 to 10.3 per cent in 2002-03. Chart F
shows the continuous improvement of the Companys
productivity (defined as value of sales per worker), from
1998-99 to 2002-03. Productivity increased by almost 18 per
cent, from Rs.28 lacs per worker in 2001-02 to Rs.33 lacs per
worker in 2002-03, mainly due to better shop floor practices,
lower breakdowns and improved efficiency in energy use.
Wastage on the shop floor has reduced by more than 20 per
cent in 2002-03 over 2001-02.
SUPPLY CHAIN MANAGEMENT
Efficient supply chain management is critical to Dabur, which
markets over 600 SKUs. The supply chain integrates a wide
range of functions encompassing production scheduling to
materials planning and procurement to primary distribution
Information Technology (IT) has played a major role in
strengthening the supply chain management by improving
operational efficiencies in procurement, production and
delivery systems. With the implementation of Baan and Mfg
Pro, supply chain management has benefited from stable
and more efficient production planning on the basis o
accurate secondary sales and stock data. Efficient supply
chain management has enhanced the flexibility of operations
lowered operation cycles and finished goods inventoriesreduced delivery costs, while improving customer-servicing
levels. In addition to meeting tight budgetary controls, these
improvements have resulted in substantial reduction in costs
due to freeing up of extra working capital.
Dabur has over 500 vendors through which they source thei
raw materials. During 2002-03, the Company followed a
strategy of rationalising its vendor base. The Company also
appointed Freemarkets, a leading e-procurement company
to assist the Company in implementing its e-sourcing
initiatives. During the year, the Company conducted
successful reverse auctions for two raw materials saffron
and jadi-booti as well as for fixing freight rates. These
initiatives resulted in a saving of around 7 per cent to 8 pe
cent on current prices of these raw materials. The Company
plans to procure more products through the reverse auction
route. This will help rationalise and upgrade the vendor base
of the Company, while at the same time result in substantia
savings and greater transparency in the procurement process
RESEARCH AND DEVELOPMENT
PHARMACEUTICALS
Discovery research in the area of Oncology forms an
important component of the growth strategy of Daburs
Pharmaceutical business. The Dabur Research Foundation
(DRF) has made significant progress on the research fron
and is active in developing new therapeutic options in
Oncology including New Chemical Entities (NCEs), vaccines
and herbal extracts.
0
5
10
15
20
25
30
35
2002-032001-022000-011999-001998-99
Chart F : Sales Turnover per employee
(Rs. Lacs)
19
23 24
28
33
In 2002-03, Total Quality Management (TQM) techniques were
implemented on a pilot basis at two plants in the area of
statistical process control. The results have been
encouraging, and have resulted in lower rejection of raw
materials, time savings, and made the procurement processmore efficient. The Company plans to implement TQM for
other functional areas in the future. In addition, Total
Production Maintenance (TPM) measures will be initiated in
two locations in 2003-04, and we plan to make TPM an
integral part of the production processes of your Company.
This initiative is aimed at improving the productive efficiency
of capital assets.
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Dabur India Limited24
Management Discussion and Analysis
At present, three of DRFs New Chemical Entities (NCEs) are
at the clinical trials stage. Phase I clinical trials for DRF7295
have been successfully completed, and the protocol for
Phase II clinical trial for submission to Drug Controller Generalof India (DCGI) is under preparation. This molecule is
expected to be useful for the treatment of GI Cancers more
specifically for colon, pancreatic and gall bladder where there
is an un-met need.
Phase I trials of Dabur s second molecule, TNP, a polymeric
nanoparticle delivery of Paclitaxel, initiated in the first quarter
of 2003, are scheduled to be completed in the fourth quarter
of 2003. It is a cremophor free water-soluble preparation
and is expected to have a better safety profile. The third
molecule, which is an oral anti-cancer product, is in early
Phase 1 clinical trial stage.
In addition to these molecules, which are at the clinical trial
stage, our research pipeline comprises 10 other anti-cancer
molecules, which are undergoing late pre-clinical trials. An
additional 36 molecules are at different stages of discovery,
and early pre-clinical trials.
To date, DRF has applied for 46 Pharmaceutical patents in
India, PCT countries, and US and has received approval for 21
patents. The total number of patent applications filed by DRF
is 150, out of which 90 patents have been granted so far.
As part of its research initiatives, DRF has developed
strengths in drug discovery technologies, including the design
of Novel Analogs of bioactive peptides and organic
molecules. It has also built capabilities in the design, cloning
and expression of synthetic genes, as well as in Nanoparticle
based drug delivery technology. Novel Drug Delivery Systems
(NDDS) for anti-cancer drugs are also being developed, with
special emphasis on nano-particles, and microspheres.
DRF is also active in the area of cancer diagnosis, and has
set up a Mutation Analysis Laboratory. By the third quarter
of 2003 Dabur will be in a position to offer sophisticated
gene mutational analysis for determining genetic
predisposition to breast and colon cancer.
Your Company has followed a strategy of working closely
with CSIR laboratories, government deparments, universities,
and scientific institutions on the research front. The network
of scientific collaborations has been further strengthened
and continues to be a resource to the discovery component
of the R&D.
FMCG
Conscious of its responsibility, Dabur is committed to the
well being of the environment in its quest for new and
improved products. Following are the major initiatives taken
by Dabur in the area of FMCG research and development
R&D plays an important role in new produc
development. The new toothpaste launched in
2002-03, was the outcome of Daburs in-house R&D
New product launches scheduled in 2003-04, too, are
taking place with active collaboration of R&D.
Following a government ban on the use of barks and
roots of certain trees, your Company has substituted
these raw materials with twigs and leaves, afte
adequate R&D in collaboration with All India Institute o
Medical Sciences (AIIMS).
The Company has stopped using banned plant species
and is engaged in the pursuit of developing appropriate
alternatives. These efforts are being carried out in active
collaboration with Department of Indian System o
Medicine (ISM) and Benaras Hindu University (BHU).
The agro-biotechnology division of the Dabur Research
is working on the development of modern and resul
oriented techniques for the cultivation of medicinal plants
Further work under the Plant for Life project continued
where rare and endangered plants were produced and
distributed for contract cultivation to various farming
and tribal communities. The Company established two
in-house facilities for developing nurseries and
transplanting saplings in Hyderabad and Nepal.
INFORMATION TECHNOLOGY
Dabur has been focusing on leveraging Information
Technology (IT) to achieve higher levels of efficiency. The
Company had implemented two ERP systems Baan
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Management Discussion and Analysis
Annua l Repor t 2002-0
and Mfg Pro in production and distribution respectively.
Use of Mfg Pro gives real-time information about the
inventory and sales situation of distributors and improves
the accuracy of demand forecasts. These demandforecasts are then fed into the back-end system (Baan) for
materials planning and production scheduling. Integration
of the two systems is expected to significantly enhance
their efficiency in 2003-04.
Mfg Pro is fully operational in the zonal offices, mother-
warehouses and CFAs and Baan is already live in five
manufacturing locations. A Secondary Sales System is also
being implemented to provide countrywide information on
Secondary pipelines and sales by brand. This new Secondary
Sales System, by making focus on secondary sales possible,
has played an important role in tracking brand-wise sales,and reducing pipeline inventories.
The improvement in area-wise and brand-wise inventory
management has scaled up the entire supply chain
management through better sales forecasts, production
scheduling, materials planning, vendor management and raw
material sourcing.
A new initiative of Reverse auctioning through Freemarkets
has been introduced. Vendor management and raw material
sourcing benefited from the reverse auctioning initiative of
the Company, undertaken for saffron, Jadi Booti, and for
fixing freight rates.This will be extended to other products
in the future.
In the year under review, your Company has implemented yet
another new intiative of Claims Settlement using an Intranet/
Extranet based system, for systematic tracking and settlement
of claims. This will result in greater efficiency in managing
receivables, and speed up the process of recovery of claims.
During the year, the Company also implemented another
major initiative, Employee Management System (EMS), an
intranet based HR-information system, including Payroll and
PF processing. This system enables employees of the
Company to access details regarding their payroll and other
HR related information using the corporate Intranet.
In 2003-04, the Company plans to implement IT solution for
PF Trust Accounting, which will make management of
Employees Provident Fund more efficient. In addition, to
strengthen the supply chain further, the Company will initiate
a process of linking its important suppliers to the Company.
This will allow the suppliers to have instant information abou
the inventory levels of finished goods and production pipeline
of the Company and is expected to improve thei
procurement process and delivery of raw materials.
Daburs IT initiatives have earned it a place in the Top Ten
Technology Managers in the country by an independen
body under the auspices of Network Computing magazine
as listed in the April 2003 issue.
HUMAN RESOURCES
A Company is as good as its people, and we are privileged
to have an excellent pool of human resources working with
us. We are committed to attract, retain and reward high
quality employees with a focus on talent management. During
the year under review, the Company took the following HR
initiatives :
Function-wise and unit-wise evaluation of optima
manpower requirement in light of increased integration
of information technology initiatives such as
implementation of Mfg Pro, Baan and e-procurement
and the challenges they present for the future.
Comprehensive training and development modules have
been developed and delivered by the company for a
levels for sales and marketing employees. Employees
from other functions have been regularly provided
functional training.
Entered into arrangement with Financial Institutions to
outsource non-core HR activities of sanctioning and
administering various loans to employees at a
competitive rate.
Implementation of Employee Management System
(EMS), a comprehensive HRIS package, which also
makes available to each employee personal data and
other services. This increases the productive time o
the employees.
Streamlining of HR policies and processes to reduceadministrative time.
On the industrial relations front, relations with workers
remained cordial, and not a single man day of work was los
due to industrial action of any kind. Moreover, a long-term
wage settlement agreement was signed with the workers
union of Narendrapur plant, which puts an end to age-old
practices, which had hindered fair employment opportunity
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Dabur India Limited26
Management Discussion and Analysis
a percentage of sales decreased from 13.3 per cent in
2001-02 to 13 per cent in 2002-03. Expenditure on
commissions, discounts and rebates came down by
7 per cent from Rs. 27 crores in 2001-02 to Rs. 25crores in 2002-03.
Pre tax profit margin (PBT/Total income) grew from 6.5
per cent in 2001-02 to 7.7 per cent in 2002-03, while
post tax profit margin (PAT/Total income) increased from
5.5 per cent in 2001-02 to 6.9 per cent in 2002-03.
Return On Capital Employed (ROCE) grew from 14.5
per cent in 2001-02 to 19.7 per cent in 2002-03, and
Return On Net Worth (RONW) grew from 16.2 per cen
in 2001-02 to 20.8 per cent in 2002-03.
Table 2 compares key financial ratios of your Company in
2002-03 as against 2001-02.
Table 2 : Key financial ratios
2002-03 2001-02
PBDIT*/Sales** 10.3% 9.2%
PBIT/Sales** 9.1% 8.6%
PBT/Total income 7.7% 6.5%
PAT/Total income 6.9% 5.5%
ROCE 19.7% 14.5%
RONW 20.8% 16.2%
Note : * does not include other income.
** Sales from operations.
Improvements in ROCE and RONW are testimony to the
Companys continuous efforts to effectively utilise its assets
In order to increase the efficiency of its assets, the Company
has rationalised unproductive capital. Consequently, tota
capital employed came down by 15.1 per cent from Rs.613.5
crores in 2001-02 to Rs.521.1 crores in 2002-03.
On the liability side, secured loans decreased by 41.6
per cent from Rs.49.7 crores in 2001-02 to Rs.29.0 crores in
2002-03 and unsecured loans reduced by 50 per cent from
Rs.163.4 crores in 2001-02 to Rs.81.0 crores in 2002-03
This has also reduced risks associated with financia
leveraging. Debt equity ratio has come down from 0.5 in
2001-02 to 0.3 in 2002-03, while interest coverage (PBIT
Interest), a measure of the Companys ability to pay interests
through its profits, has increased from 4.1 in 2001-02 to 6.6
in 2002-03.
FINANCIALS
Despite a general slowdown in the consumer goods sector
and a drought affected sluggish rural economy, your
Company has registered a 5.9 per cent growth in sales fromoperations during 2002-03 over 2001-02. Sales growth has
been accompanied by sustained improvements in operational
efficiencies, resulting in a 18.5 per cent growth in operating
profit (PBDIT less other income) in 2002-03 over 2001-02.
Reduction in interest rates, coupled with a 48.4 per cent
decrease in total debt has contributed to a 28.7 per cent
decline in financial expenses from Rs.24 crores in 2001-02
to Rs.17.1 crores in 2002-03. Sales growth, enhanced
operational efficiencies and reduced financial expenses have
translated into a 32.1 per cent growth in post tax profits
(PAT) in 2003-04 over 2001-02. Table 1 summarises Dabursfinancial performance for 2002-03.
Table 1 : Daburs abridged profit and loss statement for
2002-03 (in Rs. Crores)
2002-03 2001-02
Sales from operation 1232.3 1163.2
Other income 8.3 13.9
Total income 1240.6 1177.1
Total expenditure 1105.9 1056.6
Interest 17.1 24.0
Depreciation 22.0 21.0
PBDIT 134.7 120.5
PBIT 112.6 99.5
PBT 95.5 75.5
Current tax 7.4 5.5
Deferred tax 3.0 5.6
PAT 85.1 64.4
There are a few salient features of our financial performance,
which we would like to highlight.
Improvement in operating margins (PBDIT less other
income to Sales ratio) from 9.2 per cent in 2001-02 to
10.3 per cent in 2002-03 has been achieved primarily by
better procurement and use of raw materials. Material
cost as a ratio to sales has come down from 44.3 per
cent in 2001-02 to 42.3 per cent in 2002-03, even as there
were price increases on certain inputs.
Expenditure on advertising and publicity has increased
by 4 per cent from Rs.154.5 crores in 2001-02 to Rs.160
crores in 2002-03. However advertising expenditure as
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Management Discussion and Analysis
Annua l Repor t 2002-0
0
20
40
60
80
100
2002-032001-022000-011999-00
Chart G : Free Cash Flow (Rs. Crores)
48.7
68.1
32.3
97.9
Table 3 : Segment-wise results (Rs. Crores)
2002-03 2001-02
FMCG
Sales 1048.5 1000.3
PAT 71.9 52.5
Capital Employed 306.6 425.0
Pharma
Sales 183.8 162.9
PAT 13.1 11.9
Capital Employed 214.5 188.5
CONSOLIDATED RESULTS
Daburs consolidated results include the performance of Dabu
India Limited, Dabur Nepal (P) Limited, Dabur Foods Limited
Dabur Egypt Limited, Dabur Overseas Limited and DabuFinance Limited. The consolidated results exclude the UK
based subsidiary, Dabur Oncology Plc, which will be spun of
with the pharma business pursuant to the demerger. This is
in accordance with AS 21 para 11, which specifies that any
investment held for the purpose of disposal or transfer may
not be consolidated. Table 4 gives consolidated results.
Table 4 : Consolidated results (Rs. Crores)
2002-03 2001-02
Net Sales from operation 1370.9 1280.9
Other income 7.2 11.9
Total income 1378.1 1292.8Total expenditure 1216.3 1148.6
Interest 26.1 33.3
Depreciation 29.3 28.7
PBT (before minority interest) 106.4 82.3
Current tax 10.3 6.8
Deferred tax 3.0 6.9
PAT (after minority interest) 91.1 66.4
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
Your Company follows a strong internal audit and contro
programme. Price Waterhouse 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 the transactions in value
terms. The Company has an independent Internal Audi
function staffed with qualified and experienced people
Independence of the audit and compliance function i
ensured by the direct reporting of the internal audit division
to the Audit Committee of the Board.
On the assets side, the Company has voluntarily adhered to
Accounting Standard 28, resulting in impairment of fixed
assets of Rs.30.9 crores (net of deferred tax of Rs.18 crores).
The Company also witnessed a decrease in net current assetsby 25.7 per cent from Rs.260.9 crores in 2001-02 to Rs.193.9
crores in 2002-03, implying an improvement in net working
capital. Net working capital cycle improved from 82 days of
sales in 2001-02 to 57 days of sales in 2002-03 with debtor
cycle decreasing from 38 days of sales in 2001-02 to 35
days of sales in 2002-03.
However, inventory turnover increased from 50 days of sales
in 2001-02 to 53 days of sales in 2002-03. Inventory turnover
during the year have been affected by reduction in primary
sales in the last quarter of 2002-03, due to uncertainty
regarding VAT implementation. The reduction in primary
sales resulted in curtailed production. Consequently, raw
materials inventory increased from Rs.33.9 crores as on
31st March, 2002 to Rs.50.8 crores as on 31st March, 2003.
Finished goods inventory actually declined from Rs.90.7
crores as on 31st March, 2002 to Rs. 81.7 crores as on
31st March, 2003.
Reduced working capital, sales growth and higher
operating margins have translated into improved free cash
flow. Free cash flow is defined here as cash inflow from
operations less cash outflow from investing activities. Chart
G plots the free cash flow of the Company for the last
four years.
SEGMENT-WISE RESULTS
The Companys business is divided into two segments;
namely FMCG and Pharmaceuticals. The FMCG business
comprises Personal care products, Health care Products,
Ayurvedic specialities and others. The Pharmaceuticals
business consists of Allopathic, Oncology formulations and
bulk drugs. Table 3 gives segment-wise results.
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D b I di Li it d28
Management Discussion and Analysis
DE-MERGER
The Board of Directors of your Company decided to
de-merge the Pharmaceutical business (including assets) and
transfer it to a new company. The de-merger is subject toapproval from shareholders and appropriate authorities.
The proposed de-merger constitutes a significant restructuring
initiative and will provide greater focus and independence to
our two main businesses. The FMCG business, which will
remain within Dabur India, will concentrate on its core
competencies in personal care, Health care and Ayurvedic
specialities. The new Pharmaceutical company, Dabur Pharma
Limited, will focus on its expertise in allopathic, Oncology
formulations and bulk drugs.
We believe that the de-merger will represent a win-win
situation for both the Companies, and create greater valuefor our shareholders. Both these companies will have
dedicated management teams, with the freedom and
resources to pursue their independent growth strategies.
Moreover, their organizational cultures and performances will
mirror the peculiar characteristics of their respective
industries, and their performance indicators will be in sync
with those of their industries.
For the proposed Pharmaceutical company, the de-merger
will give it the opportunity to enter into marketing and
research alliances with international Pharmaceutical majors.
The FMCG company, on the other hand, will gain from greater
flexibility and dynamism in its operations, concentrated
utilisation of internal accruals and better asset utilisation.
It is proposed that the new Pharmaceutical company will be
publicly listed in the stock exchanges. The share holding
pattern of this new company will be the same as that of
Dabur India, and it has been decided that all shareholders
of Dabur India will be issued one additional share of Dabur
Pharma for every two shares held of Dabur India. The Dabur
brand name, which is a property of Dabur India Limited, will
be licensed to the Pharmaceutical company and all patents,
trademarks and brands pertaining to the Pharmaceutical
business will be transferred to the new Pharmaceutical
company. Apart from specific liabilities, general liabilities in
proportion to assets transferred will form a part of the new
companys source of funds.
THREATS, RISKS AND CONCERN
The slowdown in GDP growth in general, and the sluggish
growth of the FMCG sector in particular is a matter of
concern for us. When product categories decelerate as the
have done in the FMCG sector in the last few years
competition becomes intense, and both margins as well as
sales realizations come under pressure.
During 2002-03, growth in the FMCG sector was adversely
impacted by drought, and to a lesser extent by uncertainty
regarding implementation of VAT in the last two months o
2002-03. While we would not like to speculate about the
monsoons, it appears that confusion regarding VAT is likely
to persist in 2003-04.
The threat of counterfeit and spurious products constitutes
another risk factor. As the market leader in the Ayurveda and
herbal products market, Dabur is concerned that counterfe
and spurious products, besides directly impacting our salescould damage the credibility of the entire industry. The raw
materials for many of our finished products come from plants
and herbs. The rapid deforestation in the country has resulted
in an erosion of our raw material base. This constitutes ye
another risk factor.
OUTLOOK AND OPPORTUNITY
Notwithstanding the risks and concerns outlined above
Dabur is cautiously upbeat about its prospects in 2003-04
The proposed de-merger will create two focused and
independent companies, whose combined growth ratesshould outstrip the growth of the present Dabur India. The
Pharmaceutical companys growth should be driven by
exports, and new product launches, reorganisation of the
FMCG business units, and continued thrust on operationa
efficiencies should assist sales as well as profit growth o
the FMCG company.
CAUTIONARY STATEMENT
Statements in this management discussion and analysis
describing the Companys objectives, projections, estimates
and expectations may be forward looking statements within
the meaning of applicable laws and regulations. Actual results
might differ substantially or materially from those expressed
or implied. Important developments that could affect the
Companys operations include a downtrend in the domestic
FMCG industry, rise in input costs, and significant changes in
political and economic environment in India, environmen
standards, tax laws, litigation and labour relations.
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