THE INDEX / Brand-driven

Dabur India: Slow and steady wins the race

Prashant Kothari & Manish Joshi

DABUR India’s growth bears out the old adage that “Slow and steady wins the race”- The company reported a growth of 12 per cent in turnover to Rs 1,166 crore for the year ended March, 2001. Even in the previous two years, the growth rate has been in the 14- 5 per cent range.

Growth in turnover has come mainly from the digestive and hair oil segment. Pudin Hara, Hajmola and Hingoli are the major brands in the digestive segment, while Dabur Amla Hair Oil and Vatika Hair Oil are the major brands in the hair oil segment.

Dabur has been aggressively pushing the sales of Pudin Hara as a herbal substitute to other synthetic digestives such as Eno, in the Rs 275-crore gas & acidity segment of the OTC digestive market.

The gas and acidity market is currently growing at an annual rate of 15 per cent and is poised to grow at the same rate. Dabur claims to have captured 45 per cent of this segment due to the high popularity of herbal products among the consumers. This segment could generate the highest amount of sales for the company in the near future.

However, since Dabur’s products are relatively new in this segment, it would have to spend huge resources on advertising. If the current trend in advertising expenditure is any indication, the company would have to spend around Rs 175 crore in the current fiscal.

Advertisement expenditure in the last year shot up by 22 per cent to Rs 146 crore and together with staff cost, which went up by 24 per cent to Rs 72 crore, was responsible for the rise of 10 per cent in the operating cost to Rs 1,044 crore.

Comparatively lower operating costs with little change in the interest and depreciation costs have led to a surge of 39 per cent in the net profit (without extra-ordinary items) to Rs 78 crore.

Dabur’s herbal brand image will go a long way in increasing its sales in the digestive as well as hair oil segment, which have a high growth potential. However, the only grey area is the arrival of a competitor with similar herbal products.

IPCL
Undeterred by the never-ending drivel on divestment, IPCL’s financials have improved during the year to March 2001. The growth has been achieved despite adverse factors such as high naphtha prices and depreciation of the rupee. On the other hand, the prices of the finished products, particularly those of polymers, have seen a modest rise.

Turnover has gone up 23.3 per cent to Rs 5,006 crore, thanks largely to higher volumes. Polymers account for more than 70 per cent of the turnover and fibres/fibre intermediates contribute the rest. Total expenditure has risen by 22.3 per cent to Rs 3,995.8 crore. Although the raw material cost was kept under check, the staff cost has shot up by 41 per cent to Rs 439.1 crore. Operating profit grew by 27.6 per cent to Rs 1,010.2 crore. OPM gained marginally to 20.2 per cent (19.5 per cent).

Interest cost witnessed a 26.7 per cent increase to Rs 491 crore. Depreciation was up by 30.1 to Rs 414.9 crore. Both these provisions might have gone up owing to capex undertaken in the past at Gandhar complex, financed with some debt. But for other income of Rs 167.7 crore (Rs 112.1 crore), bottomline would have been flat. PAT moved up by 31.8 per cent to Rs 248.9 crore.

The company has been constantly in the news for dithering on its divestment. Recently, it has been decided to sell only the Baroda plant to IOC. According to the valuation report of Deloitte, Haskins and Sells, it is worth Rs 3,456 crore. If the deal goes through, there are a couple of reasons for the shareholders to cheer up. One, the move may solve the problem of excess manpower. More than half of total employee strength of IPCL, 7,000 is from the Baroda unit. Two, funds generated from the sale may be used for declaring special dividend and for enhancing facilities at Gandhar and Nagothane plants.

However, this may dismay investors who were looking forward to total privatisation. Although the sale of Baroda plant augurs well, it remains to be seen how IPCL stock will move sans divestment.