Professional Documents
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Strategic Management Project For Dabur India Limited
Strategic Management Project For Dabur India Limited
Dabur
Manageme
nt India Ltd.
Submitted to: Prof Amar KJR Nayak
Submitted by:
1.Introduction....................................................................................................... 3
2.Phase I.............................................................................................................. 4
3.Phase-II (1998-2003).......................................................................................... 5
Manufacturing.................................................................................................. 27
Procurement.................................................................................................... 31
Quality............................................................................................................. 32
Corporate Governance........................................................................................ 33
Dabur-Sustainability ........................................................................................... 35
EXHIBITS............................................................................................................. 39
REFERENCES....................................................................................................... 45
2
1. Introduction
Dabur India Limited (DIL) is the fourth largest FMCG Company in India with
business interests in Healthcare, Personal care and Food products. It has
revenue of about US$600 Million (over Rs 2834 Crore) & Market Capitalization of
over US$2.3 Billion. Dabur India is a 126 years old company and is the world
leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products.
Dabur since its inception has focused on manufacturing and selling Ayurvedic
products targeted at the mass consumer segment. There are number of
personal care products, Ayurvedic tonics and oral care products which it
launched between 1940 and 1970 have become leading brands today. Daburs
top nine brands had 65% or more market share in their respective product
categories. These include the health tonic Chyawanprash, Hajmola digestive
tablets and candy, digestive Pudin Hara, Dabur Lal Dant Manjan and Dabur Amla
hair oil. Dabur manufactures over 450 products, covering a wide range in health
and personal care.
3
3) International Business Division: It caters to the health and personal care
needs of international consumers in middle east, north and west Africa,
EU and US. This division has high level of localization of manufacturing
and sales & marketing.
2. Phase I
3. Phase-II (1998-2003)
In 1997, Dabur had started facing issues as two out of its four flagship brands -
Chyawanprash and Hajmola - were slipping due to product life cycle issues.
Another of its flagship brand Dabur Amla Hair Oil was also growing at a less-
than-satisfactory rate, at five per cent. Post-liberalization, with the Indian
economy opening up and foreign players entering Indian markets, Dabur
realized that competition will be picking up very soon.
In April 1997, Dabur hired the leading management consulting firm McKinsey &
Co. for mapping out a comprehensive restructuring plan for its varied businesses
and strengthen its competitive position. McKinsey primarily offered the following
advices:
5
1) To improve profitability, stay focused on core competencies i.e. ayurveda
and health care products
2) Advised Burman family to lay off from the day-to-day operations and
leave the company in the hands of professionals.
Dabur paid a fee of Rs 10 crore to McKinsey & Co. and started following its
advice religiously. In 1999, It off loaded its entire 49 per cent stake in the
confectionery joint venture General De Confiterria to its Spanish partner
Agrolimen for Rs 35 crore. The Rs 100 crore GCI product portfolio comprised of
two categories -- Boomer bubble gum and soft-filled candies, Bonkers and
Donaldo. While setting up the confectionary jointventure GCI in 1994, DIL had
estimated that the booming candy and bubble gum market would provide it with
ample opportunity to turn the venture into a profit maker. The Spanish partner
was roped in considering the highly intensive technology nature of the
confectionery market. However, the joint venture has not worked out according
to the plan as only a handful of products saw the light of the day.
Dabur India limited also scaled down its stake in Excelsia Foods to 40 per cent,
handing over control to in favour of Nestle SA to become a minority partner.
Dabur sold its 20 per cent stake in Excelcia Foods Ltd for Rs 10.6 crores. The
company also reduced its exposure to Dabur Finance, where it held 90 per cent
stake. The finance arm sold its retail business to Birla Global Finance in 1999. It
also discontinued its Samara line of herbal cosmetics that it introduced in early
1997.
In 2001, Family Council was constituted for formalizing the promoter familys
role in managing
the business interests encompassing all group companies. Dabur roped in
Accenture to define clear roles and responsibilities of its board of directors and
the chief executive officer to prevent any overlap. The roles of Management
Committee, Board of Directors and Family Council were defined and formalized.
6
In 2002, Dabur again roped in Accenture to study its sales and distribution
system. As per its
recommendations, Dabur restructured its Pharmaceutical business and
separated it from its FMCG business.
Dabur tried to reposition itself as a herbal specialist rather than flogging its
ayurvedic lineage alone. Confining itself to the ayurvedic platform would have
been restrictive as the domain could only be stretched to a certain level and not
beyond.
DIL also decided to have five main brands Dabur, Vatika, Anmol, Real and
Hajmola, and every product was to be migrated to one of these. Not only would
it have helped Dabur to focus but also it would help it to aggregate its media
spend.
7
brand building initiatives. The company concentrated on differentiating the
brand in all aspects, right from positioning to packaging. The biggest example is
Dabur Vatika which it positioned as value-added hair oil that contained pure
coconut oil enriched with natural ingredients such as Henna, Amla and lemon
against the market leader Maricos Coconut Oil.
9
Dabur implemented Accentures advice and went ahead with the following
strategies in each of the following functions.
10
Dabur Pharma Demerger
Acquisition of Balsara
In Jan 2005, Dabur India Ltd (DIL) acquired three Balsara group
companies for Rs143 crore in an all-cash deal. It mopped up Rs. 120
crores through internal accruals and financed the remaining Rs. 23 crores
through borrowings.
As per the deal it had acquired 99.4 per cent stake in Balsara Hygiene
Products, 100 per cent in Balsara Home Products and 97.9 per cent in
Besta Cosmetics. The acquisition was part of its inorganic growth strategy
which it had planned well in advance and was in line with its plan to
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expand the company's scale of operations and strengthen its presence in
the FMCG sector.
As 44 per cent of Balsara's revenue came from home care products and
the oral care segment accounted for nearly 56 per cent which had
witnessed growth in excess of 15 per cent, also
Balsara deal was a strategic fit in both oral and home care market as it
acquired the 2nd largest selling toilet cleaner Sanifresh in 2000 Cr. Home
care Mkt. Also its market share in tooth paste Industry grew by 6% from
1.8% to 8% which substantially covered the acquisition amount it paid for
Balsara.
Balsara had sales of Rs 199.6 crore & losses of about Rs 8 crore in the
period, But with readjustment in focus, streamlining of distribution and
reduction in the wage bill helped Dabur India turn Balsara Home Products
around. It reduced the distributors of Balsara from 500 to a few dozens
while giving business to its own distributor. This put more bargaining
power in Daburs hands in negotiating a reduction in distributors margins
as well as in making its purchases. Reduction in no of employee reduced
the wage bill by 60% along with substantial reduction in other overheads.
Also, Dabur payed 1/5th of what Balsara used to pay for advertisements,
hence, increasing its visibility and revenues. In six months of its take over
Balsara added about 11% to total revenue and showed great potential in
terms of revenue growth and profitability posting 35% growth in sales
and a net profit of Rs. 14.8 crores during the year. The Balsara acquisition
boosted its revenues and savings in excise duty (due to shifting of
manufacturing to tax-free zones) which also enhanced its profit margins
as seen in the following tables.
.
Figures in Crores
FY FY FY FY FY FY FY FY FY FY
00 01 02 03 04 05 06 07 08 09
Sales 982 110 120 128 123 141 175 208 239 283
0 0 5 6 7 7 0 6 4
Other 34 19 12 7 9 9 13 26 34 47
Income
EBITDA 128 137 144 162 164 217 300 376 443 517.
3
12
Growth 12 9% 7% -4% 15 24 18 15 18%
in Sales % % % % %
We can see that the financial year ending 2005 had shown an increase of
15% in sales which was immediately after the acquisition of Balsara.
Hence Daburs acquisition of Balsara not only strengthened its position in
FMCG but also its turnaround within six months made Balsara one its
profitable subsidiary.
Dabur acquired Fem care in June 2009 and the result has been
phenomenal. The market share in the skin segment increased from 1% to
6.6% within 5 months of this deal, making DIL the second biggest skin-
care company in the country behind HUL. The Fem Care brand accounts
for half of the skincare segment within the Dabur portfolio and 4.2 per
cent of Daburs total revenue.
First Dabur India had acquired 72.15% of Fem for Rs203.7 crore in an all-
cash deal. Further due to SEBIs guideline (substantial acquisition of
shares and takeovers) Regulation,2007. Dabur acquired additional 20%
stake for Rs54 crore through an open offer. The deal has been done at
more than a 21% premium to the prevailing share price of Rs 656 of Fem
Care at Rs 800/share. The deal fetched a very attractive valuation for
Fem Care Pharma. With the completion of this transaction, Fem Care
Pharma is now a 100% subsidiary of Dabur India. Marico Industries and
Godrej were also reported to be in race for Fem Care Pharma but it was
eventually won by Dabur which shows its seriousness towards FEM
Acquisition.
After the successful implementation of 4-year business plan from 2002 to 2006,
Dabur had launched another vision for 2010. One of the plans for 2010 was to
double the sales figure from what it had been in the year 2006. From the exhibits,
13
we can see that the sales figure at the end of the year 2006 was Rs. 1757 crores
and by the end of year 2009, it was Rs. 2834 crores which shows an increase of
61% in the sales. Though it has not yet reached the double figure, it seems close
to achieving the figure in 2-3 years.
Others 5%
Dabur delivers revenue growth of 20.9% in the 9 months ended 31st December
2009.
The south India market share has increased from 6% in 2002 to 12% in 2009. This
is the result of the initiatives taken by Dabur to suit the south Indian market e.g.
launching herbal toothpaste in Kerala and Tamilnadu and launching Dabur Lal
Dant Manjan as Dabur Sivappu Pal Podi etc. The market share increased after the
acquisition of Balsara as Balsara had strong presence in the south and western
region. The other factors were POS promotion, customised packaging and
commercials & customised product launch.
14
4.2 Phase#3Marketing Perspective
It was only after its association with its partner, Accenture, that it made radical
changes in its strategy. A company which was considerably inept to changes,
both organically and inorganically, now started planning acquisitions and
detailed 5 year plans for its existing segments. The reasons behind these
initiatives are as follows:
1. Its existing products were considered to be targeting the mid aged and
above aged segments, but the demography was changing in the country.
India was emerging to be a young nation and Dabur recognized the need
to have products for the younger generation, while retaining the older
segment.
2. Rise of the regional players. Players like Balsara, Zandu, Emami were fast
emerging highly competitive with more or less similar products. The
market share of Dabur was suddenly shrinking in some of the categories.
3. Rise of the Rural India. With disposable incomes rising in Rural India,
Dabur could use its distribution channel to meet the demand in Rural
India with differentiated products in newer segments at affordable prices.
4. Low penetration levels in certain categories. The acquisition of Balsara
and Fem were mostly due to this reason.
The initiatives required strategic changes across all functions. The marketing
strategy was the key behind these changes as FMCG business runs on the brand
value created over the years. The marketing strategy changed to a mix of
product branding and umbrella branding from being only umbrella branding in
the past. Products like Chyawanprash, Hair Oil, Hajmola retained the umbrella
branding while acquired products and new products like Odomos, Real, Vatika
adopted product branding.
The CCD division or the Consumer Care division has evolved considerably over
the last decade and so has its marketing strategy. CCD now comprises of FPD
and HCPD in addition to the Fem and Balsara. Dabur has invested hugely in the
advertisement of its products and differentiated its product offerings too. The
present structure of Daburs strategic units is:
DABUR
15
CCD (72.8%) CHD (07.3%) IB (18.5%)
OTHERS ---
05%
16
It launched new packaging in several products to address the needs of the
customers in a much more efficient manner. Not only it increased the top-line
through higher volumes (low priced products are a hit among price-sensitive
rural consumers) but it also increased the bottom-line through higher margins in
these smaller SKUs.
HAIR OIL Dabur Launched beauty and talent shows in Rural areas of Northern
India where it has considerable presence. Initiatives like "Banke Dikhao Rani
Pratiyogita" and Dabur Vatika Koyal Punjab Di" were launched to tap the
existing users and convert them into loyal customers of its brand.
Modern trade also allows more space and provides an established route to
launch new products. Modern trade accounts for about 5-10 per cent of urban
sales for FMCG companies and this can go up to 25 per cent for southern
markets.
In the modern trade segment, Dabur has opened its retail subsdiary called H&B
Stores Ltd. in NCR and South India. At present there are 11 stores functional and
there are plans of 12 stores to be opened in the future. Dabur initiated a
programme christened DARE (Driving Achievement of Retail Excellence) to
improve its effectiveness in organised retail in 2009. For Dabur, about 3 per cent
in 2008 of sales come from modern trade and it was expected to grow up to 7.5
per cent in 2010.
17
Sham 6.2 HUL : Vatika, 46% 13.3% 62% 9.3%
poo 45.4% Dabur Total
Oral 12.8 Colgate : Dabur Lal, 45% 8.0% 79% 6.1%
care 48.7% Meswak,Babool
Skin 6.6 HUL : Gulabari, 19% NA 30% NA
care 58.9% Fem Skin
Diges 55.0 DABUR Hajmola, NA NA NA NA
tive Candy
HEALTH 60.3 DABUR Chyawanprash, 5% 8.75% 14% 2.5%
SUPPLEMENTS Glucose-D,
Honey
FOOD 45.0 DABUR Real, Real 10% NA 30% NA
Active, Real
Burrst
HOME CARE 20.0 Premium : Odonil, 20% NA 58% NA
31% Odomos, Saini
Fresh
Daburs acquisition of Balsara and Fem are largely to the fact that the products
they deal have low penetration levels. The skin care segment stands at 19% and
30% penetration levels for the rural and urban levels respectively, which an
attractive market is, given the rise in education, disposable income of the
people living in rural India.
18
The logo was changed to a tree with a younger look. The leaves suggesting
growth, energy and rejuvenation, twin colors reflecting perfect combination of
stability and freshness, the trunk represented three people raising their hands in
joy, the broad trunk symbolized stability, multiple branches were chosen to
convey growth, and warmth and energy were displayed through the soft orange
color. Celebrating Life was chosen as a new tag that completely summarized
the whole essence.
3. It still did not provide a holistic picture and thus posed problems in
formulating a strategy or taking business critical decisions.
Therefore, to realize not just the operational excellence but also decision
support infrastructure, the idea of a single organization wide ERP
implementation was proposed in Dabur. So, With Accentures help, Dabur
implemented strategic and operational changes by implementation of
organization wide SAP core modules.
Major IT initiatives:
1. Migrated from standalone ERP systems - Baan and Mfg to centralized SAP
ERP system from 1st April, 2006 for all business units (BUs).
19
5. Roll out of IT services to new plants.
3. Dabur estimated about 6% of its total of 14% growth from the new
strategy alone, in the year 2007.
4. Accenture provided help in merging the systems of the entities after the
Balsara merger.
Future Challenges:
5. SAP roll out to Dabur Nepal Pvt. Ltd. (DNPL) and other businesses.
Dabur rears a culture that gives full autonomy to its employees. It cares for the
employees development along with the growth of the organization. Dabur
believes in nurturing a familial bond with its people by creating a harmonious
and value based work environment that encourages team spirit, and also
rewarding individual initiative. It follows more of a paternalistic approach to
care about its employees. It has implemented various training and development
programs like Young Manager Development Program, Prayas, Leading and
Facilitating Performance, Campus to Corpora and a Balanced Scorecard
20
approach to performance evaluation, have been implemented to help
employees realize their potential.
The company believes that good HR policies, by themselves, dont create a
great workplace. They need to be accompanied by ambition and a sense of
daring. So, these new HR policies have also gone hand-in-hand with plenty of
action on the business front. Dabur has made its brand identity more
contemporary. It has also taken the first steps towards becoming a true
multinational, rather than a company that does some international business.
The deal created a lot of unrest but the biggest issue was, of course, people.
Dabur already had 2,300 people on its rolls, while Balsara had 600. There was a
huge chaos as there was no room for any duplication for posts. Though Dabur
did not retrench anybody, but close to 300 people quit. These exits were the
most painful part of Dabur India's acquisition of the Balsara group's hygiene and
home products business.
A number of people quit citing locational constraints as Balsara is a Mumbai-
based company, while Dabur is headquartered at Sahibabad, near Delhi. Despite
of these problems, some areas were integrated smoothly. For example Balsara's
R&D team was seamlessly absorbed into the larger organization. Dabur had no
experience in home care, which made integration of that division invaluable on
the other hand the oral care research division possessed skills that
complemented Dabur's own team.
21
Even the manufacturing facilities didn't pose too many problems. The fact that
neither of the organizations were unionized helped as well. It aided in decision
making about Balsara's three plants -- at Silvassa (Dadra & Nagar Haveli),
Kanpur (Uttar Pradesh) and Baddi (Himachal Pradesh) much easier. Also the
Kanpur factory was a small scale factory, with just 10 workers hence the
decision to stop manufacturing there didn't cause too much disruption.
The Silvassa plant was overstaffed with 100 workers, hence about 30 of them
were shifted to Baddi, a new factory, which was understaffed at just eight
employees, thus solving two problems.
Following Dabur policies at Balsara did mean some expense. Salaries were hiked
to bring them in line with the Dabur structure; and external consultants were
brought in to conduct detailed assessments of all employees and redeployments
were made on the basis of their recommendations.
Major issues
The major portion of trouble for the HR division lay with sales. Before the
acquisition two distinct distribution networks were in place at Dabur.
While the decision was taken to aggregate the smaller business into Dabur's
infrastructure, suitable modifications were also necessary. Dabur's original
distribution was along two verticals: Line 1 for health care and Line 2 for
personal care. Now, with new product portfolios coming in, a third line was
created that to look after home care and all oral care (including Dabur's range)
products.
Dabur's consumer care frontline was made to have a total of 400 people, of
whom 120-odd were from Balsara. Had Dabur continued with just two lines
Balsara may not have got the required focus.
Since Line 3 covered Dabur and Balsara products, managed by employees of
both organisations, substantial re-training in selling techniques to match up with
that of Dabur was also required. Using the "train the trainer" module, about 55
managers conducted workshops for sales staff across the country. Dabur had to
invest in several thousand manhours of training. Inspite of the above mentioned
factors that year's wage bill was likely to be 50 per cent lower than last year's.
While the departures have meant huge savings in staff expenses, recruitment
costs also came down across the group, since Balsara people helped fill
vacancies in group companies.
22
Challenges faced in the modern era
The key factors that have triggered growth for the FMCG industry in the
period include reduction in excise duties, relaxation of licensing
restrictions and reduced dominance of unorganized sector due to creation
of level playing field. With the revival in demand in the FMCG sector and
capacity planning done by all major FMCG companies in tax haven areas
the future looks promising. Also, the government thrust on agriculture
and rural economy has facilitated improved demand for the FMCG
products.
23
successful in the venture with brands like Vatika, Dabur Amla (Dabur) and
Hair & Care (Marico) firmly rooted in the markets.
24
In the scheme of things, Dabur Foods Limited' was merged with Dabur
India Ltd. in 2007. It was now an over Rs 2,200-crore entity including the
Rs 200-crore from Dabur Foods. It thus became one of the business
divisions of Dabur India, alongside consumer care division (CCD) that
encompassed all the personal care and home care products, and
consumer health division (CHD). Dabur also made retail venture under
the health and beauty format, through its wholly owned subsidiary, H&B
Stores. It envisaged selling products ranging from personal care,
cosmetics, baby care to over-the-counter drugs.
Social Factors
It was also worthwhile for Dabur India Ltd. to consider inorganic growth.
Even though Balsara (with brands Promise, Meswak, Babool etc.) was
making losses, it did possess synergies with the growing oral care
business of Dabur. Dabur estimated the market for this category to be Rs.
2500 crores growing @ 10% p.a., which made the market very lucrative.
Thus, acquiring Balsara was an obvious step to grow inorganically.
25
The penetration levels of shampoo are abysmally low in the country. The
penetration in urban areas is around 65% while its just 35% in rural
areas. Also the per capita consumption of shampoo is just 16 ML
compared to 1000 ML in UK and US. This provides an opportunity to the
players to improve the market and their size. The Indian shampoo market
is characterized by sachets. Around 70% of total shampoo sales are
through sachets. The general trend in the international markets is to
introduce a brand through sachets and thereafter upgrade the consumer
to bigger bottles. Dabur thus shifted gears to anti-dandruff shampoo
(Dabur Vatika anti-dandruff shampoo) in 2004. It also relaunched brand
Vatika in 2007.
Technological Factors
26
initiative in skin care category through Gulabari, its ayurvedic products
which will launch shortly and through Fem.
The Operations Strategy of Dabur India Limited has changed as their business
has evolved over time. The section below tracks the various key operations
strategy such as the Manufacturing ( processes involved and locations), the
Supply chain initiatives over the years, Inventory Management, Quality
Management, Research and Development Initiatives, Procurement procedure,
Vendor Management etc over the time frame from late 1990s till 2009. The
section highlights the key defining operational strategies adopted by the
company during this period.
Manufacturing
27
practices, lower breakdowns and improved efficiency in energy use. Wastage on
the shop floor had reduced by more than 20 percent in 2002-03 over 2001-02.
As a result of the Balsara acquisition in the fiscal year 2004-05, Dabur added
three more manufacturing facilities to its fold, located at Silvassa, Baddi and
Kanpur. While the Silvassa and Kanpur facilities were primarily engaged in
manufacturing household range of products and the private label business, the
Baddi plant produced oral care products, including fluoride based toothpaste.
This plant was set up in 2004-05 and enjoyed greater tax benefits as were
available to new units in Himachal Pradesh.
Dabur Foods multi-fruit processing facility at Siliguri, West Bengal, became fully
operational during the year. The plant produced pulp and concentrates and
28
brought the Company a step closer to achieving full backward integration and
realising the resultant cost efficiencies.
The location of this plant was a major source of its competitive strength. It was
located at the heart of a major fruit-producing and trading area, thus, giving it
access to a variety of fruits including litchi, guava, mango and tomato at
competitive prices. Moreover, it was in close proximity to the Dabur Foods juice
plant located in Nepal, thereby reducing time and cost of transportation.
In 2004-05, Dabur Foods acquired a new facility near Jaipur for manufacturing
fruit juices. The plant had manufacturing facilities for 200 ml packs. This plant
was upgraded to manufacture 1 litre and 200 ml packs of Real brand of fruit
juice and the Coolers range of products.
The success of DIL's manufacturing lies in is its ability to regularly produce and
meet requirements of the sales plan. This is achieved through an efficient
production planning system that is a part of the overall supply chain initiative
called project Garuda. The initiative has helped reduce stocks and, therefore,
requirement of space with the CFAs. The ability to sustain much higher levels of
growth with the same level of inventory as 2006-07 bears testimony to
efficiency of DIL's production and supply chain system.
Dabur built a system using Visual Basic and ASP with SQL Server 2000 as the
database. Dabur had purposely decided not to use a packaged SCM solution due
to high cost. Fifty-five Ku Band TDMA VSATs were used to link primary
distributors to the system. Factories were hooked up using PAMA (Permanent
Assigned Multiple Access) VSATs. At some locations VPNs had to be used
because it was not possible to set up a dish. The zonal offices in Mumbai were
hooked up in a similar manner. The hardware was mostly owned by the primary
CFA (Carry and Forward Agent) except for the networking equipment, which was
owned by Dabur. A
The integrated primary and secondary system had a number of unique features.
2A
http://www.networkmagazineindia.com/200312/events05.shtml
29
The incorporation of these top stockists into its supply chain was a first for any
FMCG company in India.
A 'My Page' feature allowed the dealer to "see if the details of yesterday for in-
transit shipments, carrier information, copies of orders, account status, the
status of checks, credit notes and dealing with complaints. The integrated
system allowed each Area Manager to plan for the month's sales forecasts,
stockists performance, and sales officers' performance.
The BenefitsA
Beyond this, the system could forecast seasonal spikes in sales and
manufacture accordingly. The aim was to shift focus to the stockists rather than
the CFAs to get a true picture of what's happening in the market and react
faster.
2) Efficient supply chain management had always been 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 of accurate secondary sales and stock data.
Efficient supply chain management has enhanced the flexibility of
operations;lowered operation cycles and finished goods inventories;reduced
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 had over 500 vendors through which they source their 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 per cent on current
prices of these raw materials. The Company adopted plans to procure more
products through the reverse auction route. This initiative would help rationalise
30
and upgrade the vendor base of the Company, while at the same time result in
substantial savings and greater transparency in the procurement process.
During the year the Company successfully deployed the Spend Visibility
programme in collaboration with Ariba (earlier FreeMarkets) to further
strengthen its procurement efficiencies. This program had significantly
enhanced the quality of information and visibility in sourcing priorities of the
Company.
4) The Company was also intent upon creating a backward integration platform
for herbal inputs, especially those on the endangered list. To this end, Dabur
made a foray into contract farming for selected herbs as part of the
Agrobiotechnology initiative. Under this initiative, a number of backward
integration programmes had been set up in Andhra Pradesh, Tamil Nadu,
Haryana, Uttar Pradesh, Himachal Pradesh, Uttaranchal , Jammu and Kashmir
and Nepal to develop sustainable cultivation of these engendered species
through contract farming and buy back arrangements. Dabur entered into
contract farming agreements with farmers through a local coordinator. The
Company also organized quality-planting material with promising genetic
potential to farmers on no-profit-no-loss basis and provides additional technical
support.
5) Project Garuda was launched by DIL in the year of 2006, along with the
software services major Accenture. Project Garuda was expected to improve
business and capital efficiency and reduce working capital requirements.
Other important benefits of the project would have been to decrease the total
delivery costs and a supply chain system which would VAT-compliant, which
came force in 2005.
Procurement
Controlling costs in the inflationary scenario was one of the biggest challenges
faced by DIL over the years. The company effectively tackled this challenge on
the strength of its strategic futuristic planning, use of calibrated hedging
mechanisms and e-sourcing initiatives. One of the key factors that enabled the
Company to keep costs under control was the short and medium-term planning
programme that ensured regular forecasts from its team of strategic planners
within each division and departanent. Three-month forecasts on the industry
31
scenario were provided by these planners to the brand teams for taking
effective measures to combat inflation. Concurrently the creation of a Dabur
Inflation Basket focusing on the commodities most relevant to the Company's
operations helped maintain and manage costs effectively. The Dabur Inflation
Basket, which was linked to WPI( whole sale price index), helped the Company
come out with actual Inflation figures that enabled it to plan ahead in a more
focused manner.
Quality
Dabur remains resolute in its commitment to enhance quality levels across its
product portfolio. In this regard, over the last few years, the Company has
maintained a sharp focus on upgrading technology and improving
manufacturing processes at all its plants. As part of its quality assurance
programme, it undertakes regular factory quality audits by trained quality
auditors, ensures compliance with ISO 9000 procedure and implementation of
established standard operating procedures across its manufacturing bases.
Examples
The Honitus and Nature Care product lines at the Baddi plant was set-up to meet
appropriate standards of safety, quality, performance and effectiveness as set
by Medicines and Healthcare Products Regulatory Agency (MHRA) the
executive agency of the Department of Health, Government of UK. Apart from
this, the plants manufacturing Chyawanprash, Glucose and Honey received
Hazard Analysis and Critical Control Point (HACCP) certifications. Dabur Honey
has stringent measures of quality. The process of making honey has been
mechanised completely and the final product confirms the statutory
requirements of Agmark and the PFA.
Vendor Management 3
Corporate Governance
3
http://www.dabur.com/
33
Corporate Governance refers to the blend of law, regulations and voluntary
practices that are able to attract the best of capital and talent. Strong corporate
governance is indispensable for safeguarding the interests of shareholders and
other stakeholders. Excellence in governance and superior financial
performance go hand in hand. Dabur is a strong proponent of efforts towards
improving transparency in operations.
The Burman family - promoters of Dabur - has reduced its strength on the Board
of Directors to 4 members and provides only broad policy guidelines for growth
and diversification. The promoters provide the strategic direction to the
Company and the group, besides evaluating newer avenues for growth.
The three broad areas around which the board members will be evaluated are:
the guiding strategy; monitoring management performance and
development/compensation and statutory compliance and corporate
governance. Within that, each member will have to score on various parameters
like role in defining the mission, policies and long-term goals/plan for the
company; role in setting up annual business plan; role in reporting major
performance deficiencies; role in succession planning for senior management
and others.
a) Conservation of Energy
b) Technology Absorption
35
The Company has achieved a host of significant benefits in terms of
product improvement, cost reduction, product development, import
substitution, cleaner environment and waste disposal by these measures.
1) Threat of competitors
The threat of competitors is high because there are a lot of players in the
Market.
The ayurvedic platform is also being used by other players like Emami
and Ayur.
Existing players are entering new segments which will increase the
competition e.g. Casper entering the vaporizer segment and Good Knight
the personal spray and gel segment.
36
In case of home care segment the entry barriers are low since the costs to
set up manufacturing facility is not very high.
The exit barriers are low and thereby firms can enter and exit easily.
But the entry barriers in terms of building a national brand as well the
distribution network is high. So is the exit barrier.
The buyers bargaining power is low since they cannot influence the
prices to such a great deal.
Price sensitivity is high especially in the Food and Home Care category
The number of suppliers is low for the Home Care category e.g. Certain
oils are not available everywhere which increases the raw material
suppliers bargaining power when negotiating the price with Godrej etc.
Strengths
37
High brand awareness and perception of Dabur, Vatika, Hajmola, Ral
Weaknesses
Opportunities
Sugar free food and health care substitutes e.g. Sugar Free
Chyawanprash
Expanding size of pie in Home care segment due to efforts by firms like
GodrejSara Lee and niche products like Jyothy laboratories
Threats
38
EXHIBITS
39
Product Category Products
Liquidity Ratios
Current Ratio 1.19
Quick Ratio 0.99
Management
Efficiency Ratios
Receivables 22.63
Turnover
Inventory Turnover 10.94
Asset Turnover 4.84
Ratio
Financial Leverage
Ratios
Debt Ratio 0.21
Debt to Equity 0.27
Ratio
Interest Coverage 38.34
Ratio
Profitability Ratios
Gross Profit Margin 17.19
Return on Assets 23.73
40
Return on Capital 38.8
Employed
Return on Net 48.4
Worth
Dividend Policy
Ratios
Dividend Yield 0.2052
Payout Ratio 47.41
RS Crores
FY00 FY01* FY02** FY03 FY04*** FY05 FY06# FY07^ FY08 FY09
Operating Results:
Sales 982 1100 1200 1285 1236 1417 1757 2080 2396 2834
Other Income 34 19 12 7 9 9 13 26 34 47
EBITDA 128 137 144 162 164 217 300 376 443 517.3
EBITDA Margins (%) 13.0 12.5 12.0 12.6 13.3 15.3 17.1 18.1 18.5 18.3
Profit Before Tax (PBT) 81 85 82 106 124 176 257 319 384 445
Taxes 4 7 14 14 15 19 30 39 52 54
Tax Rate (%) 4.5 8.5 16.6 13.3 12.0 10.8 11.7 12.1 13.4 12.1
Profit After Tax (PAT) 77 78 64 85 107 156 214 282 333 391
PAT Margins (%) 7.9 7.1 5.4 6.6 8.6 11.0 12.2 13.5 13.9 13.8
Financial Position:
Fixed Assets (Net) 251 243 371 257 250 295 512 379 465 559
41
Total Assets 609 558 705 640 433 543 624 670 749 1081
Reserves & Surplus 292 334 365 388 257 335 440 393 531 731
Shareholders Funds 320 362 393 417 286 364 497 480 618 818
Loan Funds 289 196 304 964 132 164 121 160 99 228
Total Capital Employed 609 558 705 640 433 543 624 670 749 1081
Return Ratios:
ROCE (%) 17.0 19.5 12.6 16.1 28.6 31.3 39.0 45.7 47.6 38.8
RONW (%) 24.7 22.0 16.6 20.6 38.1 43.5 46.1 61.3 55.3 48.4
Earnings Per Share (Rs) 27.1 2.7 2.3 3.0 3.7 5.4 3.7 3.3 3.9 4.5
Dividend Per Share (Rs) 10.0 1.0 0.5 1.4 2.0 2.5 1.8 1.42 1.5 1.75
No of Shares (In Crs) 2.9 2.9 28.6 28.6 28.6 28.6 57.3 86.3 86.4 86.5
42
Source: DIL Investor Presentation Goldman Sachs Conference, August 2009, taken from
company website www.dabur.com
Source: DIL Investor Presentation Goldman Sachs Conference, August 2009, taken from
company website www.dabur.com
43
Source: DIL Investor Presentation Goldman Sachs Conference, August 2009,
taken from company website www.dabur.com
44
Dabur Real Juice BCG Matrix
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46
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