Analyst & Advisor: Abhishek Jain

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Dabur India Limited—Buy—84—INR

Sector — FMCG (personal care)
Stocks idea Regd.Off. — 8/ 3, Asaf Ali Road, New Delhi-110 002
Equity Research Listed — NSE, BSE.

Company overview—

Established in 1884, Dabur India Ltd is the largest Indian FMCG and ayurvedic
products company. The group comprises Dabur Finance, Dabur Nepal Pvt Ltd; Dabur Egypt Ltd,
Dabur Overseas Ltd and Dabur International Ltd. Products groups include health care, food
products, natural gums & allied chemicals, pharma, and veterinary products. The leading brands
are Dabur Amla, Dabur Chyawanaprash, Vatika, Hajmola, Lal Dant Manjan, Pudin Hara and the
Real range of fruit juices. In 2001, Dabur set up a 100 per cent subsidiary Dabur Oncology plc in
the UK with an investment of $16 million. The hive-off of the oncology business is part of the
company’s strategy to focus on its core businesses of fast-moving consumer goods products and
over-the-counter drugs. Company has restructured its pharmaceutical business and has virtually
separated it from FMCG business. Under the new set up, the pharmaceutical business would
continue to remain under the ambit of Dabur India but would function as a separate business unit
internally with a separate business head and functional heads. This new business unit would also
maintain separate books of accounts.

Products & Services—

Dabur India is into business of manufacturing and selling of ayurvedic medicines, baby
care, ayurvedic, natural and herbal personal and health products and processed foods either
directly or indirectly through its subsidiaries. Dabur presents range of herbal and personal care
products. Bringing together the gentle touch of nature and Ayurveda’s wisdom. Backed by the
unfailing quality of Dabur Products. Hair oil, Fairness face pack, Shampoo, Tooth paste, red gel,
lal dant manjan, dabur binaca toothbrush, vatika hair oil, anmol sarso aawla, vatika heena
conditioning shampoo, vatika anti-dandruff shampoo. Instead of this in food range of REAL active
natural juice, dabur homemade, dabur honey etc., are the few Successful brands of company.
Dabur laid out a growth strategy -- new product introductions, brand extensions to new segments,
and focus on new geographies. This strategy has paid rich dividends for Dabur and has delivered
sales growth ahead of the consumer non-durable sector average. Balsara’s acquisition
complements Dabur’s growth strategy as it provides entry to a new product segment (household
care), extends Dabur’s oral care portfolio (‘white’ toothpaste), and improves its distribution muscle
in Western and Southern India (focus areas for Dabur), as well as strengthening its international
business because Balsara exports to Middle East markets where Dabur is trying to grow its
business.

In oral care, Balsara has a 6% market share and has three brands, Promise, Babool and
Meswak based on herbal formulations. In the household care segment, Balsara’s product range
includes air fresheners under the Odonil brand, insect repellant branded Odomos, toilet cleaners
under the Sanifresh brand and dishwashers under the Odopic brand. All of these have fairly
strong brand equity and Balsara has invested significantly behind these brands over the years. All
these product segments have significant growth potential, owing to low penetration levels.
 Dabur’s international business is profitable and has operating margins only slightly below
those of the domestic business. According to management, there is further potential for
expanding margins for the international business. International operations have a footprint in 25
countries spread over six continents; however, a major part of its business is concentrated in the
Middle East. The company also has four manufacturing facilities located in UAE, Bangladesh and
Egypt. According to management, the company is looking to expand its presence in the Middle
East, the Indian Subcontinent, Russia and Africa. For the developed markets in the US and
Europe, Dabur is looking at alliances with distributors, focusing mainly on over-the counter herbal
healthcare products.

Financials—
Financials for 3rd Quarter FY2007

Financial Results Rs. lakhs

Net Sales 61759.00
Other Income 327.00
Gross Income 62086.00
Increase/Decrease in Stock 1125.00
Consumption of Raw Materials 26142.00
Staff Cost 4367.00
Total Expenditure Excluding Other Expenditure 31634.00
Other Expenditure 20087.00
Total Expenditure 51721.00
Interest 305.00
Profit Before Depreciation & Taxes 10060.00
Depreciation 1151.00
Profit Before Tax 8909.00
Provision for Taxation 1152.00
Other Provisions -170.00
Net Profit 7927.00
Face Value of Share (in Rs.) 1.00
Basic EPS (in Rs.) 1.38

Recent developments—

Dabur is planning to set up a plant at Tegubehar, 220 km from Shimla. Company is

planning to set up this plant in order to produce high quality honey at a high-tech processing plant
in Kullu valley of Himachal Pradesh. Dabur is in the process of buying land from the government
in the location. However, the value of the plant is not known. Company also plans to train locals in
the art of bee-keeping and buy raw honey and process at the company’s plant.

Dabur International, 100% subsidiary of the company has promoted a subsidiary

company in Ras Al Khaimah, UAE with the name of “Naturelle LLC”. Naturelle LLC has also
become step down subsidiary company of the company, pursuant to provisions of Companies
Act, 1956. Naturelle LLC has been established with the object of manufacturing and trading
cosmetics, foodstuffs, personal care products, home care products, health foods and ayurvedic
preparations.

Dabur is all set to establish a major manufacturing facility in Pakistan by March 2008.
This is as part of the economic cooperation among the SAARC countries. Company expects
revenues of Rs 750 million in the first year of operations in Pakistan. The project is aimed at
tapping the high potential Pakistan and Afghanistan markets for cosmetic, ayurvedic medicines
and health food. These products are already popular in the region through grey market. The
company currently operates in Pakistan through its subsidiary Asia Consumer Care. It also
operates in Bangladesh and Nepal. Dabur is also in the early stages of negotiation with Sri Lanka
for setting up a similar facility as their products are popular there as well. Apart from SAARC
countries, Dabur exports to Europe and America. The company is also planning to strengthen its
research and development operations and is likely to infuse more capital towards it. Dabur is also
looking at the option of outsourcing its R&D activities mainly in the healthcare segment.

Dabur India has plans to enter into the retail space and invest Rs. 1,400 million by 2010.
The company will establish its presence in the retail market in India with a chain of stores on the
health and beauty format ranging from 1,500 sq ft to 6,000 sq ft in size. V C Burman, chairman of
the company said, Retail is the next big focus area for Dabur India. H&B Stores plans to set up
350 retail stores across India in 5 years and expand it to over 1,000 stores by its 10th year of
operation. The company has created a 100% subsidiary “H&B Stores” for its retail foray. This
venture is also synergistic with the company’s current portfolio of ayurvedic & herbal products and
would add significantly to the company’s distribution footprint.

Valuation—

International business and foods subsidiary are likely to be significant contributors to

growth in future. Except this, company’s plan to enter into retail space will provide strong revenue
growth going forward. We expect the sales contribution of Dabur’s international business to
increase to a CAGR of 20% by FY07-09. At CMP of 84, stock is trading at 24.4 X multiple of its
FY2008 Estimated earnings. We recommend investors to BUY “Dabur India” for long-term
investment prospective.

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