98997531 FMCG Sector Study and M a Perspective

FMCG Sector Study and M&A perspective 2010

1 Richa Agarwal, PGDM – Finance (09-11)

INSTITUTE OF MANAGEMENT

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DECLARATION

I, Richa Agarwal, hereby declare that the project report on “FMCG Sector Study and M&A

Perspective” is a genuine research work undertaken by me based on publicly available

information

All care has been taken to keep this report error free and I sincerely regret for any unintended

discrepancies that might have crept into this report. I shall be highly obliged if errors (if any)

be brought to my attention.

Signature

RICHA AGARWAL

(Student)




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ACKNOWLEDGEMENT

A work is never a work of an individual. I owe a sense of gratitude to the intelligence and

cooperation of all those people who made easy to let me understand what I needed from time

to time for completion of this exclusive project.

I would like to forward my sincere gratitude to Mrs. Gagan Ahluwalia, Additional General

Manager – Corporate Affairs, Dabur India Ltd., who gave me the opportunity to work on this

project and always endured me; stood by me and without whom I couldn‟t have envisaged

the completion of this project.

I would like to express the deepest appreciation to Mr. Dhruv Sharma, Assistant Manager –

Corporate Affairs, Dabur India Ltd., who has the attitude and the substance of a genius: he

continually and convincingly conveyed a spirit of adventure in regard to project and an

excitement in regard to learning. Without his guidance and persistent help this dissertation

would not have been possible.

In addition, a thank you to Professor Kamble of Institute Of Management Technology, who

introduced me to various models like Porter five forces model, BCG matrix etc. and whose

enthusiasm for these had a lasting effect.

Also, I would like to thank DABUR INDIA LTD. for allowing me to use various resources

and material during commencement of my internship in their office.

Last but not least I wish to avail this opportunity for expressing a sense of gratitude and love

to my friends and my beloved parents for their manual support, strength, cooperation and for

everything.




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CERTIFICATE OF COMPLETION




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CERTIFICATE OF ORIGIN

This is to certify that Ms. Richa Agarwal, a student of Post Graduate Diploma in

Management (2009-2011), Institute Of Management Technology, Nagpur has worked in

Dabur India Ltd. under the able guidance and supervision of Mrs. Gagan Ahluwalia

(Additional General Manager – Corporate Affairs).

The period for which she has worked was for 9 weeks, starting from 6th

April‟10 to 11th

June‟10. To the best of my knowledge no part of this report has been reproduced from any

other report and the contents are based on original research.

Signature

Prof. R. Kamble

Institute Of Management Technology, Nagpur

(FACULTY GUIDE)




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Table of Content

Executive summary ...................................................................................................................8

Objectives of the Study .............................................................................................................9

Methodology Followed ............................................................................................................ 10

PART-1- STUDY OF FMCG SECTOR ................................................................................. 11

Chapter 1- Introduction .......................................................................................................... 12

1.1. Introduction of FMCG Sector ...........................................................................................

1.2. FMCG Sector Segments ...................................................................................................

Chapter 2 – Socio Economic Contribution............................................................................. 14

2.1. Sector‟s Contribution ........................................................................................................

Chapter 3- Key Drivers and Players of FMCG Sector .......................................................... 15

3.1 Key Growth Drivers. ...........................................................................................................

3.2 Key Trends .........................................................................................................................

3.3 Major Issues and Challenges of FMCG Sector. ...................................................................

Chapter-4 FMCG Players ....................................................................................................... 18

4.1. Dabur India Ltd.................................................................................................................

4.2. Hindustan Unilever Ltd. ...................................................................................................

4.3. ITC Ltd. ...........................................................................................................................

4.4. Procter & Gamble Hygeine and Healthcare Ltd. ...............................................................

4.5. Nestle India Ltd. ...............................................................................................................

4.6. Colgate – Palmolive Ltd. ..................................................................................................

4.7. Godrej Consumer Care ProductsLtd..................................................................................

4.8. Marico Ltd.. ......................................................................................................................

4.9. GlaxoSmithKline Healthcare Limited ...............................................................................

Chapter-5 FMCG Sector Analysis .......................................................................................... 22

5.1. SWOT Analysis ................................................................................................................

5.2. U- Cuvre Analysis ............................................................................................................

5.3. Y-O-Y Change .................................................................................................................




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PART-2- STUDY ON DABUR INDIA LIMITED ................................................................. 29

Chapter1 Introduction ............................................................................................................ 30

1.1. Introduction to Dabur Indian Limited ...............................................................................

1.2. Strategic Business Unit .....................................................................................................

Chapter2 Strategic Business Unit ........................................................................................... 32

2.1. Consumer Care Division ...................................................................................................

2.2. Customer Health Division.................................................................................................

2.3. International Business Division ........................................................................................

Chapter 3 DABUR Analysis ................................................................................................... 38

3.1. SWOT Analysis ................................................................................................................

3.2. BCG Matrix ......................................................................................................................

3.3. Porter Five Forces Model..................................................................................................

3.4. Fundamental Analysis ......................................................................................................

3.5. Share Price Performance Analysis(20DMA & 50DMA) ..................................................

PART-3- MERGER AND ACQUISITION SIMULATION.................................................. 51

Chapter1 Amrutanjan Healthcare Ltd. - An Introduction ................................................... 52

Chapter2 Merger Rationale .................................................................................................... 53

Chapter3 Valuations ............................................................................................................... 55

3.1. Financial Projection ..........................................................................................................

3.2. Beta Calculation ...............................................................................................................

3.3. WACC Calculation ...........................................................................................................

3.4. Working Capital and CAPEX Projection ..........................................................................

3.5. DCF Valuation .................................................................................................................

Chapter4 Valuations after Merger ......................................................................................... 63

4.1. Financial Projection ..........................................................................................................

4.2. WACC Calculation ...........................................................................................................

4.3. Working Capital and CAPEX Projection ..........................................................................

4.4. DCF Valuation .................................................................................................................

Chapter5 Conclusion............................................................................................................... 67




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APPENDIX A FINANCIALS .................................................................................................. 68

APPENDIX B FORMULAE USED ......................................................................................... 86

APPENDIX C ABBREVIATIONS .......................................................................................... 87

REFERENCES ........................................................................................................................ 88

DISCLAIMER ........................................................................................................................ 90

List of Tables

Table 1 Liquidity and Leverage Ratio ............................................................................................................... 47

Table 2 Management Efficiency Ratio ............................................................................................................... 48

Table 3 Profitability Ratio ................................................................................................................................. 49

Table 4 Market Based Return ............................................................................................................................ 49

Table 5 Financial Projection - Amrutanjan ....................................................................................................... 55

Table 6 Financial Projection - Dabur ................................................................................................................. 56

Table 7 Beta Calculation .................................................................................................................................... 56

Table 8 WACC Calculation - Amrutanjan ........................................................................................................ 57

Table 9 WACC Calculation - Dabur .................................................................................................................. 58

Table 10 a & b Working Capital and CAPEX Calculation - Amrutanjan ........................................................ 59

Table 11 a & b Working Capital and CAPEX Calculation - Dabur ................................................................. 60

Table 12 DCF Valuation - Amrutanjan ............................................................................................................. 61

Table 13 DCF Valuation - Dabur ....................................................................................................................... 62

Table 14 Financial Projection post merger ........................................................................................................ 63

Table 15 WACC Calculation .............................................................................................................................. 64

Table 16 Working Capital and CAPEX Calculation ........................................................................................ 65

Table 17 DCF Valuation ..................................................................................................................................... 66




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EXECUTIVE SUMMARY

Merger and acquisitions are critical phenomena: From an economic perspective, M&A

transactions are increasingly frequent events, which reshape entire industries. From a firm

perspective, it represents the single most important economic decisions in the life of a firm,

bearing great opportunities as well as great risks. From an employee perspective, it is a

source of uncertainty and change.

Many M&A transactions fail to create value. Although the main motive for M&A is the

generation of synergies, often the synergy targets are misused and the M&A transactions do

not live up to the expectations.

Based on information in the public domain, I found after acquiring `Fem care‟, a leading

personal care brand in the domestic market, FMCG major Dabur India is inspecting for

acquisitions. Like Dabur, other FMCG players are also scouting for acquisitions.

These trends in FMCG sector uncover important implications for operating models. Global

growth will continue to be a strategic focus for many Indian companies and M&A is a

legitimate strategy to achieve this. This requires an adequate understanding of various

financial models that will enable effective and integrated projections across merged entities.




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OBJECTIVE OF STUDY

To develop a basic knowledge of FMCG Sector

To analyze FMCG sector on the basis of various key players‟ past financials using

various analytical tools such as SWOT, U – Curve Analysis, Y-O-Y Changes.

To learn the application of analytical tools.

To analyze Dabur India Ltd. using various analytical tools.

To understand the market movement by analyzing the historical share price.

To understand synergies for M&A

To develop a simulation model for Dabur India Ltd. acquiring Amrutanjan Healthcare

Ltd. operating in a different market segment.




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METHODOLOGY FOLLOWED

The initial step of the project was to study about the FMCG sector and Dabur India

using its Annual reports, website and research reports and then evaluating the

financial position of the company on the basis of ratio analysis.

Analysis of FMCG sector using various tools – SWOT Analysis, BCG Matrix, U-

Curve Analysis and financial performance based on y-o-y change.

Studying the company‟s product portfolio in various segments.

Analysis of company on the basis of ratios, SWOT, BCG, Porter five forces model,

Share price performance with 20 days and 50 days moving average.

Extracting financials for Dabur India Ltd. and a Amrutanjan Healthcare Ltd. company

to design a merger model.

Financial projections for both the companies

Calculating cost of equity, cost of debt and finally WACC.

Projecting cash flow by DCF Valuation

In the end deriving the equity value post merger.




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STUDY OF FMCG SECTOR

Introduction

Socio – Economic Contribution

Key Drivers of FMCG Sector

Key Players

FMCG Analysis

P

A

R

T

I




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1. FMCG SECTOR – An Introduction

The CNX FMCG Index is a market cap weighted

index. It is a 15 stock Index from the FMCG sector

that trade on the NSE. The base period is

December 1995 and the base value is 1000.

BSE FMCG Index is a subset of the BSE500 index.

BSE-500 index represents nearly 85% of the total

market capitalization on the Stock Exchange,

Mumbai. 1998-99 is chosen as the base year, and

within this, the date February 1, 1999 is selected as

the base date for its proximity to the current

period.

The Indian FMCG sector is the fourth

largest sector in the economy with a total

market size in excess of US$ 25 billion

(Rs. 120,000 cr.). It has a strong MNC

presence and is characterized by a well

established distribution network, intense

competition between the organized and

unorganized segments and low operational

cost. Availability of key raw materials,

cheaper labor costs and presence across

the entire value chain gives India a

competitive advantage.

It has grown consistently over the last 3 –

4 years. India‟s FMCG sector is

fragmented and substantial part of sector

comprises of unbranded and unpackaged

products.

Based on latest trend, a report on FICCI

and Technopak project a growth of 10 – 12

percent for the next 10 years, reaching a

size of US$ 43 billion (Rs. 206,000 cr.) by

2013 and US$ 74 billion (Rs. 355,000 cr.)

by 2018. Implementation of the Goods and

Service Tax (GST) and opening up of

Foreign Direct Investment (FDI) in retail

can accelerate this growth.

CNX FMCG: Index Profile

BSETMCG: Index Profile




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FMCG comprises of following segments:

Personal Care:

Oral care, hair care, skin care, personal wash

(soaps); cosmetics and toiletries; deodorants;

perfumes; feminine hygiene; paper products.

Household :

Fabric wash (laundry soaps and synthetic

detergents); household cleaners (dish/utensil

cleaners, floor cleaners, toilet cleaners, air-

fresheners, insecticides and mosquito repellents,

metal polish and furniture polish).

Food & Beverage :

Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread,

cakes); snack food; chocolates; ice cream; tea; coffee; soft drinks; processed fruits,

vegetables; dairy products; bottled water; branded flour; branded rice; branded sugar;

juices etc.

Tobacco

Lighting




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2. SOCIO - ECONOMIC CONTRIBUTION

SECTOR’S CONTRIBUTION

Employment:

It is amongst the largest employers in India. With about 9 million “kirana” stores

selling FMCG produces, it supports livelihood of 13 million people. Another 25

million people are employed at wholesalers, distributors, stockist, etc

Intake of Agricultural Output:

US$ 2 billion (Rs. 9600 cr.) of agricultural produce is purchased by the FMCG sector,

processed and converted into value added products.

Consumption of Media and Advertising:

40% of media earnings from advertising come from the FMCG sector, contribution of

US$ 2 billion (Rs. 9600 cr.).

Contribution to Contract Manufacturing:

About 10 percent of FMCG production is outsourced to contract manufacturing units,

with ancillary industry contribution at about US$ 1.5 billion (Rs. 7200 cr.).

Fiscal Contribution:

The FMCG sector contributes US$ 6.5 billion (Rs. 31,000 cr.) through direct and in

direct taxes to the exchequer. Indirect taxes are about 30 percent of MRP, while direct

tax includes corporate income tax.




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3. KEY DRIVERS OF FMCG SECTOR

3.1 Key Growth Drivers

The FMCG industry has undergone substantial growth on account of the following

reasons:

Favorable Indian Economy & Demographics: 45% people in India are under 20 years

of age. Per capita disposable income has increased from $550 to $600 in 2007 (9%

increase). GDP is growing at a CAGR between 8 to 9%.In the next five years, affluent

and aspirers as a total will supersede strivers and will be dominated by aspirers, as per

NCAER.

Large Domestic Market: Increasing disposable income has resulted in a rise in the

domestic market size. Increasing income has translated into higher consumption

levels.

Disposable Income: There is increase in disposable income, observed in both rural

and urban consumers, which is giving opportunity to many rural consumers to shift

from traditional unorganized unbranded products to branded FMCG products and

urban fraternity to splurge on value added and lifestyle products.

Buying Pattern Shift: The crisis of declining FMCG markets during 2001-04 was

driven by new avenues of expenditure for growing consumer income such as

consumer durables, entertainment, mobiles, motorbikes etc. Now, as many consumers

have already upgraded, their income is being directed towards pampering themselves.

Presence across value chain: Indian FMCG firms have a presence across the entire

value chain of the industry, from raw material supply to final processed and packaged

goods, both in the personal care products and in the food processing sector. As a

result firms located in India have become more cost competitive.




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Growing share of organized retail: The modern trade format provides a wider

visibility to the FMCG products. Organized retail has led to a boom in consumption

by generating wide spread employment opportunities.

3.2 Key Trends

Underpenetrated Growth Categories: Within the Indian FMCG industry, there are

few categories that grew more than 20% during 2008-2009, like shaving cream,

skin/fairness cream, shampoos, skin care & cosmetics, tooth powder. Some other

growth categories were hair color, skin care, anti-aging solution, deodorants and

men‟s products.

Penetrated Growth Categories: Even mainstream categories with high penetration

levels such as washing detergents, soaps and hair oils have shown strong underlying

volume growth, despite sharp inflation led price increases in FY08. This is partly

related to the growth in organized retail (3-5% of turnover for most FMCG players)

that gives more visibility to national brands with strong brand equity.

Health Food Categories: FMCG majors are widening their health food portfolio to

cash in on the rich, urban, health conscious Indian. Sugar free Chyawanprash, organic

spices and multi grain pastas and biscuits are few examples. Urban India is high on

health and FMCG majors are cashing in on the opportunity. Also, with the Indian

consumer becoming increasingly health conscious, the demand for juices has

witnessed rapid growth.

Impact on sector due to economic slowdown:

o During economic slowdown, consumer expenditure of a household has declined

more than decline / slowdown in their income. This suggests a decline in the share

of consumption in income and a greater weight given by consumers to the

precautionary motive of saving. Also, Indian consumers have reduced their

expenditure share on Durables and Semi- durable goods.




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o In many parts of rural India, we found consumption increasing due to growing

incomes led by rising food price realizations and Government schemes like the

National Rural Employment Guarantee Scheme (NREGS).

o Simultaneously, there are some signs of down trading in urban homes with fixed

incomes given the more direct impact that such consumers have experiences due

to the downturn.

o Most FMCG products (non durables) are necessities, and therefore their volume

consumption has been largely unaffected in the current economic slowdown. A

report by FICCI and Technopak states that the sector has coped well with recent

challenges and grew by 15 percent in 2009.

3.3 Major Challenges to the Indian FMCG sector

Highly unorganized: Although the organized market is gaining strength, majority of

the share is still captured by the unorganized market. Rising income levels and a

growing middle class allows players selling branded products to push consumers

towards branded products.

High competition between large and small players: Rise in disposable incomes and

more young population have spruced up demands for products in the personal care,

processed food etc segments. This has led to competition among the FMCG

companies may put the profit margins under pressure.




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4. KEY PLAYERS

4.1 DABUR India Ltd.

Dabur India Limited is the fourth largest FMCG Company in India with Revenues of US$750

Million (Rs 3390 Crore) & Market Capitalizations of US$3.5 Billion (over Rs 16,000 Crore).

The brand name Dabur is derived from the words 'Da' for „Daktar‟ or „Doctor‟ and 'bur' from

Burman. From those humble beginnings, the company has grown into India's leading

manufacturer of consumer healthcare, personal care and food products. Building on a legacy

of quality and experience of over 125 years, Dabur operates in key consumer products

categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care & Foods with key

brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. The company has

kept an eye on new generations of customers with a range of products that cater to a modern

lifestyle, while managing not to alienate earlier generations of loyal customers.

4.2 HUL Ltd.

Hindustan Unilever Limited is amongst the top five exporters of the country and also the

biggest exporter of tea and castor oil. The product portfolio of the company includes

household and personal care products like soaps, detergents, shampoos, skin care products,

color cosmetics, deodorants and fragrances. It is also the market leader in tea, processed

coffee, branded wheat flour, tomato products, ice cream, jams and squashes.HUL operations

involve over 2,000 suppliers and associates and distribution network covers 6.3 million retail

outlets including direct reach to over 1 million.. In the future, the company plans to

concentrate on its herbal health care portfolio (Ayush) and confectionary business (Max). Its

strategy to grow includes focusing on the power brands' growth through consumer relevant

information, cross category extensions, leveraging channel opportunities and increased focus

on rural growth.




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4.3 ITC Ltd.

Indian Tobacco Corporation Ltd is an associate of British American Tobacco with a 37 per

cent stake. In 1910 the company's operations were restricted to trading in imported cigarettes.

The company changed its name to ITC Limited in the mid seventies when it diversified into

other businesses. ITC is one of India's foremost private sector companies with a turnover of

15,388 crore INR (FY09). While ITC is an outstanding market leader in its traditional

businesses of cigarettes, hotels, paperboards, packaging and agro exports, it is rapidly gaining

market share even in its nascent businesses of branded apparel, greeting cards and packaged

foods and confectionary. After the merger of ITC Hotels with ITC Ltd, the company will

ramp up its growth plans by strengthening its alliance with Sheraton and through focus on

international projects in Dubai and the Far East. ITC's subsidiary, International Travel House

(ITH) also aims to launch new products and services by way of boutiques that will provide

complete travel services.

4.4 Procter & Gamble Hygiene and Health Care Limited

Richardson Hindustan Limited (RHL), manufacturer of the Vicks range of products, was

rechristened 'Procter & Gamble India' in October 1985, following its affiliation to the 'Procter

& Gamble Company', USA. Procter & Gamble Hygiene and Health Care Limited (PGHHCL)

acquired its current name in 1998, reflecting the two key segments of its business. P&G, USA

has a 65 per cent stake in PGHHCL. The parent also has a 100 per cent subsidiary, Procter &

Gamble Home Products (PGHP). The overall portfolio of the company includes healthcare;

feminine-care; hair care and fabric care businesses. P&G‟s Beauty Business is over US$ 10

Billion in Global Sales, making it one of the world‟s largest beauty companies. The P&G

beauty business sells more than 50 different beauty brands including Pantene®, Olay®, SK-

II®, Max Factor®, Cover Girl®, Joy®, Hugo Boss®, Herbal Essences® and Clairol Nice ‟n‟

Easy®. In India, P&G‟s beauty care business comprises of Pantene, the world‟s largest

selling shampoo, Head & Shoulders, the world‟s No. 1 Anti-dandruff shampoo and Rejoice –

Asia‟s No. 1 Shampoo.




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4.5 Nestle India Ltd.

Nestle India Ltd a 59.8 per cent subsidiary of Nestle SA, Switzerland, is a leading

manufacturer of food products in India. Its products include soluble coffee, coffee blends and

teas, condensed milk, noodles, infant milk powders and cereals. Nestle has also established

its presence in chocolates, confectioneries and other processed foods. Soluble beverages and

milk products are the major contributors to Nestlé‟s total sales. Some of Nestlé‟s popular

brands are Nescafe, Milkmaid, Maggi and Cerelac. The company has entered the chilled

dairy segment with the launch of Nestle Dahi and Nestle Butter. Nestle has also made a foray

in non-carbonated cold beverages segment through placement of Nestea iced tea and Nescafe

Frappe vending machines. Exports contribute to 20 per cent of its turnover (FY09).

4.6 Colgate Palmolive India Ltd.

Colgate Palmolive India is a 51 per cent subsidiary of Colgate Palmolive Company, USA. It

is the market leader in the Indian oral care market with 51.3% market share (year to date).

The company also has a presence in the premium toilet soap segment and in shaving

products, which are sold under the Palmolive brand. Other well known consumer brands

include Charmis skin cream and Axion dish wash. The company's strategy is to focus on

growing volumes by improving penetration through aggressive campaigning and consumer

promotions. The company plans to launch new products in oral and personal care segments

and is prepared to continue spending on advertising and marketing to gain market share.

Margin gains are being targeted through efficient supply chain management and bringing

down cost of operations.

4.7 Godrej Consumer Products Ltd.

Godrej Consumer Products (GCPL) is a leader among India's Fast Moving Consumer Goods

companies, with Personal and Home Care Products. Their brands, which include Cinthol, No.

1, Expert and Ezee, among others, are household names across the country.

Their Branch Offices in Mumbai, Delhi, Kolkata and Chennai ensure pan-India coverage,

while factories located at Malanpur (Madhya Pradesh), Thana (Himachal Pradesh), Katha

(Himachal Pradesh), Guwahati (Assam) and Sikkim cater to the diverse requirements of their

products

GCPL now owns international brands and trademarks in Europe, Australia, Canada, Africa

and the Middle East. Their mission is to continuously enhance the quality of life of




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consumers in high-growth markets with superior-quality and affordable personal care and

hygiene products.

4.8 Marico

Marico is a leading Indian Group incorporated in 1990 and operating in consumer products,

aesthetics services and global Ayurvedic businesses. The company also markets food

products and distributes third party products. Marico owns well-known brands such as

Parachute, Saffola, Sweekar, Shanti Amla, Hair & Care, Revive, Mediker, Oil of Malabar and

the Sil range of processed foods. It has six factories, and sub-contract facilities for

production. The overseas sales franchise of Marico's branded FMCG products is one of the

largest amongst Indian companies. It is also the largest Indian FMCG company in

Bangladesh.

4.9 GlaxoSmithKline Healthcare Ltd.

GlaxoSmithKline Consumer Healthcare‟s (GCH) core business is manufacturing of health

drinks under the brand Horlicks. The history of the company goes way back in 1950s when

bottled Horlicks was imported from England. But in the year 1955 due to change in import

policy, import of Horlicks was stopped.

During 1956-57 a team of Horlicks visited India to explore possibilities for setting up a plant

in India. For this the company approached Maharaja of Nabha Pratap Singh in Punjab. Later

in October 1958 with the support of Maharaja, Hindustan Milk food Manufacturer (HMML)

was established to produce Horlicks.

In the year 1969 Beecham plc acquired Horlicks England, which led the company to become

major shareholder in HMML. In 1979 Beecham India was merged with Hindustan Milk food

Manufacturer. Later Beecham plc, UK got merged with SmithKline USA.

In January 2000 the name was changed to GlaxoSmithKline Consumer Healthcare.

It exports products to countries like Bangladesh, Myanmar, Sri Lanka, Middle East, Fiji,

Mauritius, Nepal, Bhutan and many more.

GCH has manufacturing plants located at Punjab, Andhra Pradesh, Haryana, Hyderabad,

Chennai, Guwahati, Ghaziabad, Bangalore and Gurgaon.




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5. FMCG ANALYSIS

5.1 SWOT ANALYSIS

STRENGTHS

Low operational costs

Presence of established

distribution networks in both

urban and rural areas

Presence of well – known brands

in FMCG Sector

WEAKNESS

Lower scope of investing in

technology and achieving

economies of scale, especially in

small sectors.

Low export levels

“Me-too” products, which

illegally mimic the labels of the

established brands, these products

narrow the scope of FMCG

products in rural and semi- urban

market.

OPPORTUNITIES

Untapped rural market

Rising income levels, i.e. increase

in purchasing power of consumers

Large domestic market – a

population of over one billion

Export potential

High consumer good spending

THREAT

Removal of import restrictions

resulting in replacing of domestic

brands.

Slowdown in rural demand




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5.2 U – Curve Analysis

In Rs. Crore HUL Dabur Marico Godrej Colgate GSK P&G Emami

Sales 21,215.15 2,476.52 1,902.34 1,113.67 1,786.87 2,025.76 815.64 739.79

PBDIT 3,241.48 473.4 222.1 209.11 364.04 402.14 246.04 141.57

PBDIT / Sales 15.28% 19.12% 11.68% 18.78% 20.37% 19.85% 30.17% 19.14%

Generalists Specialists

Ditch




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Through market forces, markets that are largely free of major entry barriers are eventually

characterized by two kinds of competitors: full-line generalists and product/market

specialists. Full-line generalists compete across a range of products and markets, and are

volume-driven players for whom financial performance improves with gains in market share.

Specialists tend to be margin- driven players, and their financial performance deteriorates as

they increase their share of the broad market. Contrary to traditional economic theory, then,

evolved markets tend to be simultaneously oligopolistic as well as monopolistic.

Figure plots financial performance and market share of various key players of FMCG sector

viz. Emami, HUL, Godrej, Colgate Palmolive, P&G, Dabur, Marico and GSK. The figure

indicates that both at the lower volume end and at the higher volume end, there are big profits

/ margins Though there are big profits at the two ends of the parabola, the game is totally

different at the lower revenue end compared to the higher revenue. Similarly, at the middle

end of the curve [where we have medium volumes], there is a sharp fall in returns (a

phenomena that is seen across industries). This “Mid- Zone” has been defined as the Ditch.

HUL Dabur Marico Godrej Colgate GSK P&G Emami

Sales (in Rs. Cr) 10,151.54 1,246.01 957.05 580.07 999.17 1025.37 719.51 224.01

PBDIT (in Rs. Cr) 1,712.66 188.28 89.94 105.79 202.53 209.67 159.69 36.39

PBDIT/Sales 16.87% 15.11% 9.40% 18.24% 20.27% 20.45% 22.19% 16.24%




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In a competitive, mature market, there is room for only three generalists but there can be

more number of product / market specialists as is evident from the figures. Here is a

classification of the two:




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5.3 Y-o-Y Change

5.3.1 COGS as a % of Sales

Company FY10 FY09 9MFY10 9MFY09

Dabur 45.40% 48.60% 45.60% 49.30%

Marico 47.40% 53.50% 48.20% 54.50%

Godrej Consumer 46.40% 55.20% 47.00% 56.70%

HUL 49.86% 52.46%

50.60% 53.70%

ITC 36.0% 38.6% 40.00% 42.40%

Colgate 37.5% 33.5% 43.10% 43.60%

GSK Consumer Healthcare 37.10% 38.00% 37.00% 38.00%

P&G Hygiene and Healthcare 30.10% 31.30% 30.50%

Nestle 47.70% 48.70% 51.00% 52.80%




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5.3.2 Gross Profit Margin

Company FY10 FY09 9MFY10 9MFY09

Dabur 54.60% 51.40% 54.40% 50.70%

Marico 52.60% 46.50% 51.80% 45.50%

Godrej Consumer 53.60% 44.80% 53.00% 43.30%

HUL 50.14% 47.54% 49.40% 46.30%

ITC 64.05% 61.36% 60.00% 57.60%

Colgate 62.54% 66.51% 56.90% 56.40%

GSK Consumer Healthcare 62.90% 62.00% 63.00% 62.00%

P&G Hygiene and Healthcare 69.90% 68.70% 69.50%

Nestle 52.30% 51.30% 49.00% 47.20%




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5.3.3 EBITDA Margin

Company Q4FY10 04FY09

Dabur 20.53% 18.81%

Marico 14.98% 14.48%

Godrej Consumer 23.52% 22.96%

GSK Consumer Healthcare 24.20% 26.80%

P&G Hygiene and Healthcare 29.60% 27.90%

Nestle 21.50% 24.40%




TECHNOLOGY

STUDY OF DABUR INDIA LIMITED

Dabur India Ltd. – An Introduction

Strategic Business Units

Dabur Analysis

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TECHNOLOGY

1. DABUR INDIA LIMITED – An Introduction

DABUR: IN SENSEX: IND

LAST PRICE (INR)

(as on June 4, 2010)

190

BSE Code 500096

NSE Code DABUR

Bloomberg Code DABUR IN

FUNDAMENTALS

Shares (Millions)

867.586

Market Cap (Millions) 166,923.50

Earnings 5.820

Price/Earnings 33.058

ROE 54.372

Beta vs. Sensex 0.604

Dabur India Ltd. with revenue of Rs. Rs 3390

Crore (FY10) made its beginnings with a small

pharmacy and has marked its presence with

significant achievements and today commands a

market leadership status. The Company has come a

long way in popularizing and making easily

available a whole range of products based on the

traditional science of Ayurveda. And Dabur has set

very high standards in developing products and

processes that meet stringent quality norms.

3 Subsidiary Group companies - Dabur

International, Fem Care Pharma and newu

8 step down subsidiaries: Dabur Nepal Pvt. Ltd

(Nepal), Dabur Egypt Ltd (Egypt), Asian

Consumer Care (Bangladesh), Asian Consumer

Care (Pakistan), African Consumer Care

(Nigeria), Naturelle LLC (Ras Al Khaimah-

UAE), Weikfield International (UAE) and

Jaquline

17 ultra-modern manufacturing units spread

around the globe over India.

Products marketed in over 60 countries.

Wide and deep penetration with 50 C&F

agents, more than 5000 distributors and over

2.8 million retails outlets all over India




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The Company's business is structured in three strategically aligned strategic business units:

Consumer Care Division (CCD)

which markets a wide range of

products across various consumer

categories. This division accounted

for 72.8% of the Company‟s

consolidated sales in 2008-09.

Consumer Health Division (CHD)

which offers over-the-counter (OTC) products, branded ethical and classical products

based on the Ayurveda platform. This Division accounted for 7.3% of Consolidated

Sales in 2008-09.

International Business Division (IBD) which has made rapid strides and become a

key growth driver for the Company. With its business spread over Middle East, North

Africa and South Asia, the division contributed to 18.5% of the consolidated sales in

2008-09.




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2. STRATEGIC BUSINESS UNITS

2.1 Consumer Care Division

Extension of existing brands to more

sub-categories and making more choice

available to consumers, coupled with

increased focus on rural penetration,

was the key platform on which CCD

leveraged its growth during 2008-09.

The division reported growth of 13.8%,

supported by strong performance

across various segments.

The CCD business is divided into four key portfolios: healthcare, personal care, home care

and foods. These cater to a number of consumer market segments including hair care, oral

care, baby and skin care, health supplements, digestives, home care and foods. Share of these

product segments in CCD sales is presented in Figure.




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Products

Health Care




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Personal Care

Hair Care




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Skin Care

Home Care

Food




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2.2 Consumer Health Division (CHD)

The Consumer Health Division, comprising a range of healthcare products that provide

Ayurveda-based solutions for health related issues, continued to be key focus area for the

Company during the year. With both the OTC (Over the Counter) and Classical product

categories continuing to drive the Company‟s

CHD business, that was initiated in 2008.

CHD registered an 18.9% growth (FY09),

with both, the Ethical &OTC portfolio doing

well across the range driven by packaging up

gradation, mass media activities and a whole

range of on ground consumer activations including Dabur Ayurvedic Health Camps.

With Juhi Chawla as its brands ambassador, the Women‟s Health portfolio comprising

Dashmularishita did well growing by 13.25 and 14.2% respectively. The newly launched

Dabur Active Blood Purifier also gained market share in this segment.

Other new product launched

during the year-Dabur Super

Thanda Tail and Dabur Active

Antacid evoked a good market

response. Dabur Badam Tail,

launched during the previous

year, recorded 20.6% growth,

with sales touching about Rs.6 crore in the second year of its launch.

The Honitus franchise in this segment grew 13.6% during 2008-09 with new variants Mulethi

Power and Honey Mint, adding to the brand portfolio.

2.3 International Business Division

The division, which has been transformed from being a small operation into a multi location

business spreading through the Middle East, North Africa, West Africa and South Asia, grew

by 39.9% during the year 2009 and emerged as the fastest growing division of the Company.

The division‟s performance was supported by strong volume-led growth as well as price

increases undertaken to offset the impact of high inflation on input costs during the year. This




TECHNOLOGY

acceleration in growth of IBD led to its contribution to Dabur‟s consolidated revenue going

up to 18.5% for FY09 from 15.7% a year ago.

The key categories accelerating the division‟s growth are Hair Creams, Toothpastes, Hair

Oils and Conditioners. It is pertinent to mention that the brand architecture in the Company‟s

overseas markets remains similar to that in India, though the product sold under these brands

are customized and modified to the requirements of these markets.

A significant contributor to the division‟s growth during 2008-09 was geographical

expansion, resulting from opening up of fresh markets like Lebanon, Turkey, Algeria,

Morocco and Mauritania that offer new avenues for growth.

The division‟s top line growth was boosted by robust performance in key geographies like

GCC, Nigeria and Bangladesh.

GCC, which is one of the Company‟s key markets, grew by 46%during the year as a result of

excellent off takes witnessed in the Vatika Hair Oil franchise, and also high growth in Vatika

Naturals styling hair cream.

Egypt, which has emerged as another key geography, doubled itself with a growth of 99%

during the fiscal with strong performances from Vatika Hair Cream and Vatika Olive Lite

Hair Oil.

Nigeria, which is predominantly an Oral Care market for IBD, delivered a strong 36% growth

for the year .Brands that delivered strong performances during the year in this market were

Dabur Herbal Toothpaste and Dabur Herbal Gel.

Asian Consumer Care, Bangladesh, performed exceedingly well, reporting a growth of 56%

during the fiscal. The growth was led by increased distribution penetration and focused brand

approach.

Nepal which is one of the key markets in the Indian subcontinent, recorded a steady growth

of 11%. The Pakistan operation was, however, impacted by the political uncertainty

prevailing in the country.




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3. DABUR ANALYSIS

3.1 SWOT Analysis

STRENGTH

Differentiated products

Wide distribution network

Brand strength

WEAKNESS

Inadequate presence in South India

OPPORTUNITY

Untapped Market

Market Development

Innovation

Increasing income level of the middle

class

Creating additional consumption

pattern

THREAT

Existing Competition

New Entrants




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The analysis shows Dabur India‟s Strengths, Weaknesses, Opportunities and Threats which

is operating in FMCG sector which will give a clear picture of the business environment it is

operating in at the present time.

Strengths:

The strengths of a business or organization are positive elements, something they do well and

are under their control. The following section will outline main strengths of Dabur India

Having alliances with other strong and popular businesses is a major plus point for

Dabur India as it helps bring in new customers and make business more effective.

Being a market leader in the niche market (FMCG industry), as Dabur India is, it

boosts profit, turnover and market share.

Competitive pricing is a vital element of the overall success, as this keeps them in line

with their rivals, if not above them.

Keeping costs lower than their competitors and keeping the cost advantages helps

them pass on some of the benefits to consumers.

The products offered by them are original, meaning many people will return to Dabur

India to obtain them.

Dabur India‟s marketing strategy has proved to be effective, helping to raise profiles

and profits and standing out as a major strength.

Their innovation keeps them a front-runner in FMCG as it is regularly turning out

new patents/proprietary technology.

High quality machinery, staff, offices and equipment ensure the job is done to the

utmost standard.

Dabur India has an extensive customer base, which is a major strength regarding sales

and profit. Moreover people view it with respect and have faith in it.

Being financially strong helps them deal with any problems, ride any dip in profits

and out perform their rivals.

Dabur India‟s international operations mean a wider customer base, a stronger brand

and a bigger chunk of the global market.

Having little competition, being one of very few companies providing this product is a

major factor in Dabur India‟s performance.

Supplier relationships are strong at Dabur India, which can only be seen as strength in

their overall performance.




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Weaknesses:

Weaknesses of a company or organization are things that need to be improved or perform

better, which are under their control. Dabur India Ltd has not observed any failure on the part

of the company to correct major weakness in internal control system except that in the South,

they do not have a strong presence especially in the hair oil segment

Opportunities:

Opportunities are external changes, trends or needs that could enhance the business or

organization‟s strategic position, or which could be of a benefit to them. This section will

outline opportunities that Dabur India is currently facing.

Dabur India could benefit from Governmental support, in the form of grants,

allowances, training etc.

Looking at export opportunities is a way for them to raise profits.

Changes in technology could give an opportunity to bolster future success.

They could benefit from expanding their online presence and making more money

from online shoppers/internet users.

The changes in the way consumers spend and what they buy provides a big

opportunity for them to explore.

They are in good financial position, which is an opportunity for them to explore in

terms of investment in new projects.

Grasping the opportunity to expand the customer base is something they can aim for,

either geographically or through new products.

Takeover and merger opportunities could be explored for them and used to acquire

new customers, new resources and enter new markets.

Forming strategic alliances and joint ventures is an opportunity for them to maximize

profit and gain new business.

Structural changes in the industry open other doors and opportunities for them.




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Threats:

Threats are factors which may restrict damage or put areas of the business or organization at

risk. They are factors which are outside of the company's control. Being aware of the threats

and being able to prepare for them makes this section valuable when considering contingency

plans and strategies. This section will outline main threats Dabur India is currently facing.

Tax increases placing additional financial burdens on Dabur India could be a threat.

Change in demographics could threaten Dabur India.

The financial burden of increasing interest rates could be a threat to them.

Regulations requiring money to be spent or measures to be taken could put financial

or other pressure on Dabur India.

New products/services from rival firms could lead to their products/services being

less in demand.

Being undercut by low-cost imports is a major threat for them.

Slow growth and decline of the FMCG market.

Increased competition from overseas is another threat as it could lead to lack of

interest in their products/services.

Extra competition and new competitors entering the market.

Substitute products available in the market present a major threat to Dabur India




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3.2 BCG Matrix

High Low

High

Low

DABUR Glucose

DABUR Honey

Meswak

Dazzl

New U

New U

Fem

Chyawanprash

Hajmola

Real

STAR

S

Question

Mark

Cash

Cows

Dog

s

M A R K E T S H A R E

M

A

R

K

E

T

G

R

O

W

T

H




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3.3 Porter Five Forces Model

1) The threat of substitute products:

The existence of close substitute products increases the propensity of customers to switch to

alternatives in response to price increases (high elasticity of demand).

Buyer propensity to substitute

Relative price performance of substitutes

Buyer switching costs

Perceived level of product differentiation

In case of Dabur since it is in major areas of FMCG and health care products so it need not

fear threat of substitute products in the recent future. But it has to constantly reinvent its

existing product lines in order to cope up with the innovations of its competitors.




TECHNOLOGY

2) The threat of the entry of new competitors:

Profitable markets that yield high returns will draw firms. This results in many new entrants,

which will effectively decrease profitability. Unless the entry of new firms can be blocked by

incumbents, the profit rate will fall towards a competitive level (perfect competition).

The existence of barriers to entry (patents, rights, etc.)

Economies of product differences

Brand equity

Switching costs or sunk costs

Capital requirements

Access to distribution

Absolute cost advantages

Learning curve advantages

Expected retaliation by incumbents

Government policies

Dabur India is in business for more than 100 years. Dabur India Ltd. made its beginnings

with a small pharmacy, but has continued to learn and grow to a commanding status in the

industry. The Company has gone a long way in popularizing and making easily available a

whole range of products based on the traditional science of Ayurveda. And it has set very

high standards in developing products and processes that meet stringent quality norms. So, all

the advantages of first mover, learning curve, brand loyalty, patents and economies of scale

exist with Dabur India.

The various product into which Dabur India is operating and giving edge over others are:

Personal care through Ayurveda: Dabur introduced Indian consumers to personal care

through Ayurveda, with the launch of Dabur Amla Hair Oil. So popular is the product that it

becomes the largest selling hair oil brand in India.

Launched Dabur Chyawanprash in tin pack: The ancient restorative Chyawanprash is

launched in packaged form, and becomes the first branded Chyawanprash in India.




TECHNOLOGY

Entered Oral Care & Digestives segment: In rural markets, where homemade oral care is

more popular than multinational brands, Dabur introduces Lal Dant Manjan. With this a

conveniently packaged herbal toothpowder is made available at affordable costs to the

masses.

Dabur continues to make innovative products based on traditional formulations that can

provide holistic care in our daily life. An Ayurvedic medicine used as a digestive aid is

branded and launched as the popular Hajmola tablet.

Care with fun: The Ayurvedic digestive formulation is converted into a children's fun product

with the launch of Hajmola Candy. In an innovative move, a curative product is converted to

a confectionary item for wider usage.

Leadership in health care: Dabur establishes its leadership in health care as one of only two

companies worldwide to launch the anti-cancer drug Intaxel (Paclitaxel). Dabur Research

Foundation develops an eco-friendly process to extract the drug from its plant source.

Real blitzkrieg: Dabur captures the imagination of young Indian consumers with the launch

of Real Fruit Juices - a new concept in the Indian foods market. The first local brand of 100%

pure natural fruit juices made to international standards, Real becomes the fastest growing

and largest selling brand in the country.

Super specialty drugs: With the setting up of Dabur Oncology's sterile cytotoxic facility, the

Company gains entry into the highly specialized area of cancer therapy. The state-of- the-art

plant and laboratory in the UK have approval from the MCA of UK. They follow FDA

guidelines for production of drugs specifically for European and American markets.

3) The intensity of competitive rivalry:

For most industries, this is the major determinant of the competitiveness of the industry.

Sometimes rivals compete aggressively and sometimes rivals compete in non-price

dimensions such as innovation, marketing, etc.

Number of competitors

Rate of industry growth

Intermittent industry overcapacity

Diversity of competitors




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Informational complexity and asymmetry

Fixed cost allocation per value added

Level of advertising expense

Economies of scale

Sustainable competitive advantage through improvisation

Key players and competitors of Dabur India currently are Hindustan Unilever Ltd., Tata Tea,

Nestle India Ltd., Britannia Industries Ltd., Colgate Palmolive Ltd., Marico Ltd.,

GlaxoSmithKline, Cadbury India ltd., ITC Ltd., and Procter & Gamble. Since the industry is

growing at a very rapid pace and so is the no. of players. So Dabur India has to constantly

relook at its strategy in order to increase its global dominance.

4) The bargaining power of customers:

It is the ability of customers to put the firm under pressure and it also affects the customer's

sensitivity to price changes.

Buyer concentration to firm concentration ratio

Degree of dependency upon existing channels of distribution

Bargaining leverage, particularly in industries with high fixed costs

Buyer volume

Buyers Switching cost relative to firm switching costs

Buyer information availability

Availability of existing substitute products

Buyer price sensitivity

Differential advantage (uniqueness) of industry products

RFM Analysis

Bargaining powers of buyers have increased dramatically with the advent of Globalization.

With increased presence of other players in the market as mentioned previously, suppliers

have got wide range of choices. So Dabur India has to formulate strategy in such a manner to

keep abreast with the increasing competition by improving the quality and reducing the prices

over the period.




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5) The bargaining power of suppliers: (Also described as market of inputs).

Suppliers of raw materials, components, labor, and services (such as expertise) to the firm

can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g.

charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs

Presence of substitute inputs

Supplier concentration to firm concentration ratio

Employee solidarity (e.g. labor unions)

Threat of forward integration by suppliers relative to the threat of backward

integration by firms

Cost of inputs relative to selling price of the product.

Due to its over 100 years presence Dabur does have a very strong bond with the suppliers.

Also Dabur does follow the policy of having good relations with all the peoples with which it

deals. This helps in having a good relation with the suppliers. Also the policy of being

accountable to stakeholders be it customers, without whom it will not be in business,

shareholders, who have an important stake in Dabur‟s business and the employees, suppliers

who have a vested interest in making it all happen- are their stakeholders.

3.4 Fundamental Analysis

Liquidity and Leverage Ratio

Mar 05 Mar 06 Mar 07 Mar 08 Mar 09

Current Ratio 0.76 0.89 0.89 1.07 1.06

Quick Ratio 0.24 0.32 0.36 0.49 0.38

Debt to equity ratio 0.14 0.05 0.05 0.03 0.19

Interest Coverage Ratio 36.41 38.50 65.16 34.46 30.55

Current Ratio of Dabur for last 5 year is near to 1 and for last 2 financial years it is more than

1 this indicates that the company is in good position as Current Ratio standard for FMCG

Table 1




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industry is 1:1 which indicates that the current asset of Dabur consists of less amount of

inventory. Value of sundry debtors is quite high. The liquidity ratios have increase from

previous year which shows that Dabur has increased its liquidity further.

Debt/Equity ratio means the ratio of finance coming from Debts compared to shareholders. A

ratio exceeding 1 may be a cause for concern. As it can be seen that the Debt/Equity ratio is

near to 0.03 & 0.05 for the last three year this means that company operate the business

mainly through owner funds but this financial year Debt/Equity ratio has increased from 0.03

to 0.19 this indicate that company has taken loan from market to finance the business. With

Debt/Equity ratio we can say that in this financial year 2009 company is investing Rs 1 from

their pocket and 19 paisa from outside. As they have taken loan from market then there

Interest coverage ratio has decreased. Interest Coverage Ratio show that how Leverage the

company is the higher the ratio the less leverage

Management Efficiency Ratio

Mar05 Mar06 Mar07 Mar08 Mar09

Receivable turnover ratio 24.98 35.31 39.70 25.94 22.63

Inventory Turnover Ratio 8.26 9.03 10.72 9.52 8.66

Total Asset Turnover 3.18 3.15 3.92 4.33 4.50

Inventory turnover ratio show that how many times in a year has the company converted its

inventory into debtor. As the Inventory turnover ratio has decreased as compared to the

previous 4 year this show how slow the goods are moving in the market and also indicate the

production and sales efficiency of the company. Debtor turnover ratio show how that how

many times company can convert debtors into cash in a year.DTR has decreased as compared

to the previous 4 years which is good on behalf of the company because they are recovering

money faster from debtor. Asset turnover ratio is net sales/net asset has ATR is increasing

marginally for all the 4 year this show that company net sales is increasing year on year

which is good from company‟s point of view.

Table 2




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Profitability Ratio


Gross Profit Margin 14.08% 18.22% 16.19% 18.48% 16.83%

Operating Profit Margin 14.73% 17.91% 17.46% 18.62% 18.44%

EBITDA Margin 15.29% 18.13% 18.17% 19.48% 19.66%

EBT Margin 13.41% 15.97% 16.29% 17.45% 17.75%

Net profit Margin 11.62% 13.78% 14.15% 14.89% 15.34%

Contribution Margin 49.94% 50.65% 47.94% 43.97% 40.20%

Return on Asset 43.90% 51.61% 64.79% 77.78% 62.17%

Return on common equity 43.80% 48.13% 59.26% 68.06% 59.02%

Return on Total Equity 43.80% 48.13% 59.26% 68.06% 59.02%

Return on Total Capital 82.19% 45.58% 57.57% 67.72% 54.57%

EBIT as percentage of sales is good and there has been significant change in it during last 4

years from 13.41 in 2005 to 17.75 in 2009. There has been a significant change in operating

Margin as compared to the last 4 years, in year 2009 it is 18.44% as compared to 2005 when

it was 14.73%. The profit generating ability is not so good as visible from the fall in ROCE to

59.02% in year 2009 from 68.06% in 2008, perhaps because of the increased in debt (change

in capital structure) and decreased in current liability (non interest bearing item).

Market Based Return


Avg. P/E Ratio

28.9 26.7 20.7

Avg. Market Cap (Rs. Crore)

8154.2 8899.4 8131.8

Price to Book Value

17.7 14.7 10

EPS

3.3 3.9 4.5

PER ratio for Dabur is not so good with values over 25 in the year 2007 and 2008. But for

this financial year it is 20.7 that mean it is decreasing the P/E ratio which is not a good

symbol. Market capitalization of Dabur has decreased from 2008 which was 8899.4 to 8131.8

in 2009 therefore Management need to look forward to increase their market capitalization.

Table 3

Table 4




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3.5 Share Price Analysis (20 DMA and 50 DMA)

From the above Moving Average Chart we can see that in the month of January to June

Dabur price line has shown upward trend as the price was moving along with 20 days moving

average. In the mid of march, 20 days moving average is suppose to cut 50 days moving

average but it does not happen if suppose it has cut the 50 days moving average then the price

should have fall. As from April the gap between 20 days moving average and 50 days

moving average goes on increasing therefore from April to June price of Dabur stock has also

gone up. But in the month of October 09, February 10 and April 10, we could see 20 days

average and 50 days average line intersecting each other causing decrease in price in those

periods. But the upward trend in the month of May 10 can forecast that the stock price of

Dabur is going to raise further and it is seems that it will go further up recommending the

buying of the stock of Dabur.




TECHNOLOGY

MERGER & ACQUISITION SIMULATION

Amrutanjan Healthcare Ltd. – An Introduction

Merger Rationale

Valuations

Valuation post merger

Conclusion

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1. AMRUTANJAN HEALTHCARE LTD.– An Introduction

ARJN: IN SENSEX: IND

LAST PRICE (INR)

(as on June 4, 2010)

Rs. 763

BSE Code 590006

NSE Code AMRUTANJAN

Bloomberg Code ARJN IN

FUNDAMENTALS

Shares (Millions)

3.03

Market Cap(Millions) 2,330.4

Earnings 290.5

Price/Earnings 2.65

ROE 154.8

Beta vs. Sensex 0.648

Amrutanjan Healthcare Ltd. with revenue of Rs.

Rs 96.07 Crore (FY09) started in the year 1893 by

the social reformer, journalist and freedom fighter,

Desodharaka" Sri.Nageswara Rao Pantulu Garu, and

today it is one of the household names in South

India.

The Company's OTC (Over The Counter) segment's

Gross Sales is higher by 12.5% at Rs. 88.06 crores

while Company's FGD (Fine Chemicals Division)

segment's sales is higher by 8.6% at Rs.8.01 crores.

Profit before extraordinary items is at Rs. 18.72

crores, which is higher by 88% when compared to

the previous year. This achievement was possible on

account of higher interest income earned on

investment of surplus monies and better operational

efficiency achieved during the year.

While Amrutanjan Pain Balm (Yellow Balm) is the

flagship brand of the company with a rich heritage

of over 100 years. With a wide range of ayurvedic

and allopathic products, Amrutanjan has helped

millions of people relieve themselves from the pain

and discomfort of headaches, colds, sprains,

muscular pains, rheumatic pains and stands a real

pain management specialist for its loyal customers.




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2. MERGER RATIONALE

One plus one makes three: this equation is the special alchemy of a merger or an acquisition.

A merger happens when two firms agree to go forward as a single new company rather than

remain separately owned and operated. This kind of action is more precisely referred to as a

"merger of equals". The firms are often of about the same size. Both companies' stocks are

surrendered and new company stock is issued in its place. For example, in the 1999 merger of

Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged,

and a new company, GlaxoSmithKline, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company

will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim

that the action is a merger of equals, even if it is technically an acquisition.

The key principle behind buying a company is to create shareholder value over and above

that of the sum of the two companies. Two companies together are more valuable than two

separate companies - at least, that's the reasoning behind M&A. This rationale is particularly

alluring to companies when times are tough. Strong companies will act to buy other

companies to create a more competitive, cost-efficient company. The companies will come

together hoping to gain a greater market share or to achieve greater efficiency. Because of

these potential benefits, target companies will often agree to be purchased when they know

they cannot survive alone.

Working on the same lines, following are the key rationales behind Acquisition of

Amrutanjan Healthcare Ltd.

Synergy: After acquiring the firm, Dabur would have a greater value than the sum of

its parts as a result of enhanced revenues and the cost base.

Cost Reduction: Dabur would be able to reduce its fixed costs by removing duplicate

departments or operations, lowering the costs of the company relative to the same

revenue stream, thus increasing profit margins.

http://www.investopedia.com/terms/m/merger.asp

http://www.investopedia.com/terms/a/acquisition.asp




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Entry to New Markets / Geographical Diversification: This would enable Dabur to

expand regional presence as 55% of Amrutanjan‟s revenue is from south. These

would complement Dabur's regional saliency, as Dabur has a higher revenues share

coming from the markets in the north and the east.

Cross Selling: Following the strategy of pushing new products to current customers

based on their past purchases, it is designed to widen the customer's reliance on the

company and decrease the likelihood of the customer switching to a competitor.

Increase Product Range: By acquiring Dabur would be able to have the technical

knowhow of pain relieving ointments hence would be able to increase their product

range and add another segment to their product portfolio.

The acquisition also marks Dabur's entry into niche segments of pain relieving

product segment providing it completely new area of growth – which could be

capitalized on in the future.

Empire Building: A bigger company to manage and hence more power.




TECHNOLOGY

3. VALUATIONS

3.1 Financial Projections

3.1.1 Amrutanjan Healthcare Ltd.

in Rs. Crores 2007A 2008A 2009A

2010

E

2011

E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E

Revenue 73.4 75.0 97.6 113.4 131.8 153.1 177.9 206.7 237.7 273.4 314.4 361.6 415.8

Growth (YoY) %

2.2% 30.2% 16.2% 16.2% 16.2% 16.2% 16.2% 15.0% 15.0% 15.0% 15.0% 15.0%

Personnel Expenses 9.0 9.4 10.9 12.7 14.8 17.2 19.9 23.2 26.6 30.6 35.2 40.5 46.6

Operating and Other Expenses 48.0 53.3 66.3 77.0 89.5 104.0 120.9 140.4 161.5 185.7 213.6 245.6 282.5

EBITDA 16.4 12.2 20.4 22.5 26.1 30.4 35.3 41.0 47.1 54.2 62.3 71.7 82.5

EBITDA margin (%) 22.4% 16.3% 20.9% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8%

Depreciation 1.5 1.5 1.5 1.8 1.9 2.1 2.3 2.5 2.6 3.0 3.2 3.3 3.8

EBIT 14.9 10.7 18.9 20.7 24.3 28.2 33.0 38.5 44.5 51.2 59.2 68.4 78.6

EBIT margin (%)

14.3% 19.3% 18.3% 18.4% 18.4% 18.5% 18.6% 18.7% 18.7% 18.8% 18.9% 18.9%

Transfer to Revaluation Reserve 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financial Expenses 0.54 0.747 0.15 0.7 0.8 0.7 1.0 1.1 1.2 1.5 1.7 1.9 2.2

Financial Expenses/ Revenue 0.7% 1.0% 0.2% 0.6% 0.6% 0.5% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

PBT 14.3 10.0 18.7 20.0 23.5 27.5 32.0 37.4 43.3 49.7 57.5 66.5 76.4

Taxes 4.8 3.7 6.5 7.0 8.3 9.7 11.2 13.2 15.2 17.5 20.2 23.4 26.9

Effective Tax Rate 33.3% 36.5% 34.9% 34.9% 35.4% 35.1% 35.1% 35.2% 35.1% 35.2% 35.2% 35.2% 35.2%

PAT 9.6 6.3 12.2 13.0 15.2 17.9 20.7 24.2 28.1 32.2 37.3 43.1 49.5

Net Income margin (%) 13.0% 8.5% 12.5% 11.5% 11.5% 11.7% 11.7% 11.7% 11.8% 11.8% 11.9% 11.9% 11.9%

Table 5




TECHNOLOGY

3.1.2 Dabur India Ltd.

in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E

Revenue 2,069.0 2,395.1 2,852.3 3,422.7 4,107.3 4,928.7 5,914.5 7,097.4 8,303.9 9,715.6 11,367.2 13,299.7 15,560.6

Growth (YoY) %

15.8% 19.1% 20.0% 20.0% 20.0% 20.0% 20.0% 17.0% 17.0% 17.0% 17.0% 17.0%

Personnel Expenses 166.7 199.3 234.7 281.6 338.0 405.6 486.7 584.0 683.3 799.4 935.4 1,094.4 1,280.4

Operating and Other

Expenses 1,533.2 1,758.1 2,104.7 2,525.6 3,030.7 3,636.8 4,364.2 5,237.1 6,127.4 7,169.0 8,387.7 9,813.6 11,482.0

EBITDA 369.2 437.7 512.9 617.2 740.7 888.8 1,066.6 1,279.9 1,497.5 1,752.0 2,049.9 2,398.3 2,806.1

EBITDA margin (%) 17.8% 18.3% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0%

Depreciation 34.3 36.4 44.9 54.3 62.8 72.1 82.0 103.6 114.8 126.4 138.5 162.2 189.7

EBIT 334.9 401.3 468.1 562.9 677.9 816.7 984.6 1,176.3 1,382.7 1,625.6 1,911.3 2,236.2 2,616.3

EBIT margin (%) 16.2% 16.8% 16.4% 16.4% 16.5% 16.6% 16.6% 16.6% 16.7% 16.7% 16.8% 16.8% 16.8%

Transfer to Revaluation

Reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financial Expenses 15.4 16.8 23.2 25.8 31.0 38.2 45.0 54.2 63.6 74.2 86.9 101.7 118.9

Financial / Revenue 0.7% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%

PBT 319.5 384.5 444.8 537.1 646.8 778.5 939.5 1,122.0 1,319.0 1,551.4 1,824.4 2,134.4 2,497.4

Taxes 37.3 50.6 54.0 66.2 81.2 96.1 116.6 139.5 163.5 192.6 226.5 264.9 310.0


PAT 282.2 333.8 390.8 470.9 565.6 682.4 822.9 982.5 1,155.5 1,358.8 1,597.9 1,869.6 2,187.4

Net Income margin

(%) 13.6% 13.9% 13.7% 13.8% 13.8% 13.8% 13.9% 13.8% 13.9% 14.0% 14.1% 14.1% 14.1%

Table 6




TECHNOLOGY

3.2 Beta Calculation

Company Levered Beta Debt Equity D/E Ratio Unlevered Beta Levered Beta

HUL 0.541 421.95 2,061.51 0.20 0.46

Marico 0.492 308.53 367.68 0.84 0.29

Godrej 0.501 62.89 536.92 0.12 0.46

Colgate 0.358 4.69 216.3 0.02 0.35

GSK 0.578 0 905.1 0.00 0.58

P&G 0.519 0 440.04 0.00 0.52

Emami 0.628 440.08 296.03 1.49 0.29

DABUR 0.605 138.98 818.809 0.17 0.53 0.49

Sectoral Unlevered Beta 0.44

Adjusted beta 0.62

3.3 WACC Calculation

3.3.1. Amrutanjan Healthcare Ltd.

Cost of Equity 12.7%

Risk free rate (Yield on 10 - yr Govt. of India bond)

7.6%

Equity Risk Premium for U.S.

4.5%

India - Country Risk Premium

4.5%

India - Equity Risk Premium

9.0%

Unlevered Beta

0.4

Levered Beta

0.6

Effective Cost of Debt 5.8%

Cost of Debt

7.3%

Tax Rate

20.0%

D/E Ratio (FY 2009) 0.36x

WACC 10.9%

Table 8

Table 7




TECHNOLOGY


Cost of Equity 12.5%

Risk free rate (Yield on 10 - yr Govt. of India bond)

7.6%


4.5%


4.5%


9.0%

Unlevered Beta

0.4

Levered Beta

0.5


Cost of Debt

10.2%

Tax Rate

20.0%


WACC 11.4%

Table 9




TECHNOLOGY

3.4 CAPEX and Net working capital Projection


in Rs. Crores 2007A 2008A 2009A

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

Net

PPE/revenue

(%) 17.1% 25.7% 16.3% 16.3% 16.0% 15.0% 14.0% 13.0% 12.0% 12.0% 11.0% 10.0%

10.0

%

Net PPE 12.6 19.3 15.9 18.5 21.1 23.0 24.9 26.9 28.5 32.8 34.6 36.2 41.6

Depreciation

/net PPE 12.1% 7.6% 9.3% 9.7% 8.8% 9.3% 9.3% 9.1% 9.2% 9.2% 9.2% 9.2% 9.2%

Depreciation 1.5 1.5 1.5 1.8 1.9 2.1 2.3 2.5 2.6 3.0 3.2 3.3 3.8

CAPEX 14.1 8.2 -1.9 4.4 4.5 4.0 4.2 4.4 4.3 7.3 5.0 4.9 9.2

in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E

2019

E

Debt 9.8 12.5 34.2

Cash and Cash

Equivalents 7.8 2.7 67.5

Current Assets 25.8 25.2 92.4

Current Liabilities 8.2 9.5 13.8

Net Working

Capital 19.6 25.4 45.3 52.7 61.2 71.1 82.6 96.0 110.4 127.0 146.0 168.0 193.1

Shareholders'

Equity 23.2 25.5 93.8

Net Working

Capital Turnover 3.7 2.9 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2

Net Working

Capital Days 97.5 123.7 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5

Table 10 a

Table 10 b




TECHNOLOGY



Debt 185.8 126.4 258.1

Cash and Cash

Equivalents 60.7 76.6 148.4

Current Assets 640.5 773.9 950.8


Net Working Capital 313.8 91.7 252.8 303.4 364.0 436.8 524.2 629.0 736.0 861.1 1,007.5 1,178.7 1,379.1

Shareholders' Equity 479.6 617.6 818.8

Net Working Capital

Turnover 6.6 26.1 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3

Net Working Capital

Days 55.4 14.0 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3


Net

PPE/revenues 18.3% 19.4% 19.6% 19.1% 19.0% 18.0% 17.0% 18.0% 17.0% 16.0% 15.0% 15.0% 15.0%

Net PPE 379.2 465.3 559.2 654.4 780.4 887.2 1,005.5 1,277.5 1,411.7 1,554.5 1,705.1 1,994.9 2,334.1

Depreciation/

net PPE 9.0% 7.8% 8.0% 8.3% 8.0% 8.1% 8.2% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%

Depreciation 34.3 36.4 44.9 54.3 62.8 72.1 82.0 103.6 114.8 126.4 138.5 162.2 189.7

Table 11 a

Table 11 b




TECHNOLOGY

3.5 DCF Valuation


in Rs. Crores 2007A 2008A

2009

A

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E 2019 E

EBIT 15 11 19 21 24 28 33 39 45 51 59 68 79

Less: Taxes 5 4 7 4 5 6 7 8 9 10 12 14 16

Add: Depreciation and Amortization 2 1 1 2 2 2 2 2 3 3 3 3 4

Less: Increase in Net Working Capital 20 6 20 7 9 10 12 13 14 17 19 22 25

Less: Capex 14 8 -2 4 4 4 4 4 4 7 5 5 9

FCF -22 -5 -4 7 8 11 13 15 20 20 27 31 32

Discount Factor 1.00 0.90 0.81 0.73 0.66 0.60 0.54 0.49 0.44 0.40

Discounted FCF

7 7 9 9 10 12 11 13 14 13

Sum of Discounted FCF (1) 104

Terminal Growth Rate

5.0%

Terminal Value

579

Discounted Terminal Value (2) 229

Valuation in Rs. Crores (1) + (2) 333

Equity Value 366.5

Terminal Value as a % of Overall Value 68.7%

Table 12




TECHNOLOGY


in Rs. Crores 2007A 2008A 2009A 2010 E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

EBIT 335 401 468 563 678 817 985 1,176 1,383 1,626 1,911 2,236 2,616

Less: Taxes 37 51 54 112 135 163 196 235 276 324 381 446 522

Add: Depreciation and

Amortization 34 36 45 54 63 72 82 104 115 126 139 162 190

Less: Increase in Net Working

Capital 314 -222 161 51 61 73 87 105 107 125 146 171 200

Less: Capex 413 123 139 150 189 179 200 376 249 269 289 452 529

FCF -395 487 159 305 356 474 582 565 866 1,033 1,233 1,329 1,555

Discount Factor 1.00 0.90 0.81 0.72 0.65 0.58 0.52 0.47 0.42 0.38

Discounted FCF

305 320 382 421 367 505 541 580 561 589

Sum of Discounted FCF (1) 4,571


5.0%

Terminal Value

25,569

Discounted Terminal Value (2) 9,689

Valuation in Rs. Crores (1) + (2) 14,259

Equity Value 14149.8

Terminal Value as a % of

Overall Value 67.9%

Table 13




TECHNOLOGY

4. VALUATION AFTER MERGER

4.1 Financial Projections

in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E Revenue (Acquirer) 2,069.0 2,395.1 2,852.3 3,349.2 3,932.8 4,618.0 5,422.6 6,367.4 7,322.5 8,420.9 9,684.0 11,136.7 12,807.2

Revenue (Target) 73.4 75.0 97.6 113.4 131.8 153.1 177.9 206.7 237.7 273.4 314.4 361.6 415.8

Revenue 2,142.4 2,470.0 2,949.9 3,462.6 4,064.6 4,771.1 5,600.5 6,574.1 7,560.3 8,694.3 9,998.5 11,498.2 13,223.0

Synergie 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

107.1 123.5 147.5 173.1 203.2 238.6 280.0 328.7 378.0 434.7 499.9 574.9 661.1

Revenue synergie 2,249.5 2,593.5 3,097.4 3,635.8 4,267.8 5,009.7 5,880.6 6,902.9 7,938.3 9,129.0 10,498.4 12,073.1 13,884.1

Cost (Acquirer) 1,699.9 1,957.4 2,339.4 2,807.2 3,368.7 4,042.4 4,850.9 5,821.1 6,810.6 7,968.4 9,323.1 10,908.0 12,762.4

Cost (Target) 57.0 62.8 77.3 89.8 104.3 121.2 140.8 163.6 188.2 216.4 248.8 286.2 329.1

Cost 1,756.9 2,020.1 2,416.6 2,897.0 3,473.0 4,163.6 4,991.7 5,984.7 6,998.8 8,184.8 9,571.9 11,194.2 13,091.4

Synergie 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

175.7 202.0 241.7 289.7 347.3 416.4 499.2 598.5 699.9 818.5 957.2 1,119.4 1,309.1

Cost Synergie 1,581.2 1,818.1 2,174.9 2,607.3 3,125.7 3,747.2 4,492.5 5,386.2 6,298.9 7,366.3 8,614.7 10,074.7 11,782.3

EBITDA 668.4 775.4 922.4 1,083.3 1,271.8 1,492.9 1,752.4 2,057.1 2,365.6 2,720.5 3,128.5 3,597.8 4,137.5

EBIDTA Margin % 29.7% 29.9% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8%

EBIT 632.6 737.5 876.1 1,028.1 1,209.8 1,419.3 1,670.5 1,967.2 2,268.4 2,608.7 3,000.1 3,450.0 3,978.9

EBIT Margin % 28.1% 28.4% 28.3% 28.3% 28.3% 28.3% 28.4% 28.5% 28.6% 28.6% 28.6% 28.6% 28.7%

Financial Expense (Acquirer) 15.4 16.8 23.2 Financial Expense (Target) 0.5 0.7 0.2

Financial Expense 15.9 17.5 23.4 25.9 30.5 36.4 42.2 49.7 57.3 65.7 75.6 87.0 100.0 Financial Expense / Revenue 0.7% 0.7% 0.8% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

PBT 616.6 720.0 852.7 1,002.2 1,179.3 1,382.9 1,628.3 1,917.5 2,211.1 2,543.0 2,924.5 3,363.0 3,878.9

Tax (Acquirer) 37.3 50.6 54.0

Tax (Target) 4.8 3.7 6.5

Tax 42.1 54.3 60.6 71.7 85.7 99.2 117.2 138.3 159.1 183.2 210.7 242.2 279.4


PAT 574.6 665.7 792.2 930.5 1,093.6 1,283.7 1,511.1 1,779.2 2,052.0 2,359.8 2,713.8 3,120.9 3,599.5

Table 14




TECHNOLOGY

4.2 WACC Calculation

Cost of Equity 12.4% Risk free rate (Yield on 10 - yr Govt. of India bond)

7.6%


4.5%


4.5%


9.0%

Unlevered Beta

0.4

Levered Beta

0.5


Cost of Debt

10.2%

Tax Rate

20.0%


WACC 11.4%

Table 15




TECHNOLOGY

4.3 CAPEX and Net Working Capital Projection

in Rs. Crores 2007A 2008A 2009A 2010

E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E

Debt(Acquirer) 185.8 126.4 258.1

Debt(Target) 9.8 12.5 34.2

Debt 195.6 138.9 292.3

Cash and Cash Equivalents (Acquirer) 60.7 76.6 148.4 Cash and Cash Equivalents (Target) 7.8 2.7 67.5

Cash and Cash Equivalents 68.5 79.3 215.9

Current Assets (Acquirer) 640.5 773.9 950.8

Current Assets (Target) 25.8 25.2 92.4

Current Assets 666.3 799.1 1,043.2

Current Liabilities (Acquirer) 451.8 732.1 807.6

Current Liabilities (Target) 8.2 9.5 13.8


Net Working Capital 333.4 117.1 298.1 351.0 338.5 454.4 522.5 595.7 703.5 802.6 919.8 1,063.0 1,219.9 Net working capital turnover 6.7 22.1 10.4 10.4 12.6 11.0 11.3 11.6 11.3 11.4 11.4 11.4 11.4

Net working capital days 54.1 16.5 35.1 35.2 29.0 33.1 32.4 31.5 32.3 32.1 32.0 32.1 32.1

Shareholders' Equity (Acquirer) 479.6 617.6 818.8 Shareholders' Equity (Target) 23.2 25.5 93.8

Shareholders' Equity 502.8 643.0 912.6 928.4 1,135.1 1,362.6 1,555.1 1,846.3 2,127.2 2,434.1 2,806.8 3,227.4 3,708.5 Shareholders' Equity / Revenue 22.3% 24.8% 29.5% 25.5% 26.6% 27.2% 26.4% 26.7% 26.8% 26.7% 26.7% 26.7% 26.7%

Fixed Asset (Acquirer) 379.2 465.3 559.2

Fixed Asset (Target) 12.6 19.3 15.9

Net Fixed Asset/ Revenue 17.4% 18.7% 18.6% 18.2% 18.0% 18.0% 17.0% 16.0% 15.0% 15.0% 15.0% 15.0% 14.0%

Total Fixed Asset 391.7 484.5 575.1 662.5 768.2 901.7 999.7 1,104.5 1,190.7 1,369.4 1,574.8 1,811.0 1,943.8

Depreciation (Acquirer) 34.3 36.4 44.9 54.3 62.8 72.1 82.0 103.6 114.8 126.4 138.5 162.2 189.7

Depreciation (Target) 1.5 1.5 1.5 1.8 1.9 2.1 2.3 2.5 2.6 3.0 3.2 3.3 3.8 Depreciation / total fixed asset 9.1% 7.8% 8.1% 8.3% 8.1% 8.2% 8.2% 8.1% 8.2% 8.2% 8.2% 8.2% 8.2%

Total Depreciation 35.8 37.9 46.3 55.2 62.0 73.5 81.9 89.9 97.2 111.8 128.4 147.8 158.6

CAPEX 130.7 136.9 142.6 167.7 207.1 179.8 194.7 183.5 290.4 333.8 384.0 291.4

Table 16




TECHNOLOGY

4.4 DCF Valuation

in Rs. Crores 2007A 2008A 2009A 2010 E 2011

E 2012

E 2013

E 2014

E 2015

E 2016

E 2017

E 2018

E 2019

E

EBIT 633 738 876 1,028 1,210 1,419 1,671 1,967 2,268 2,609 3,000 3,450 3,979

Less: Taxes 42 54 61 205 241 283 333 392 453 520 599 688 794 Add: Depreciation and Amortization 36 38 46 55 62 74 82 90 97 112 128 148 159 Less: Increase in Net Working Capital 333 -216 181 53 -12 116 68 73 108 99 117 143 157

Less: Capex 0 131 137 143 168 207 180 195 183 290 334 384 291

FCF 293 807 544 683 875 887 1,171 1,397 1,622 1,810 2,079 2,382 2,895

Discount Factor 1.00 0.90 0.81 0.72 0.65 0.58 0.52 0.47 0.42 0.38

Discounted FCF

683 786 715 848 908 946 949 978 1,006 1,098

Sum of Discounted FCF (1) 8,917


5.0%

Terminal Value

47,703

Discounted Terminal Value (2) 18,093

Deal Value 367

Valuation in Rs. Crores (1) + (2) 26,644

Equity Value 26567.4

Terminal Value as a % of Overall Value 67.9%

Table 17




TECHNOLOGY

5. CONCLUSION

There are many reasons of wishing to engage in Merger and Acquisition but creating value is

the primary reason for it. In some cases, the company might be a good bargain with future

potential gains. In other cases, one of the companies may be in financial trouble and the

merger might be a way to fix their predicament. Even a company that is in financial disrepair

maybe a good bargain once the problems are fixed.

Sometimes the backing of a larger company is all that the smaller companies need to return to

profitability. In the case of an acquisition, the purchaser is speculating that the company will

be of greater value at some future point in time. There are many financially motivated reasons

why a company may choose to merge or acquire another company.

In the project I have taken a comparatively smaller company for acquisition but with a

different product portfolio speculating various synergies as a rationale for M&A. The

objective was to analyze whether the acquisitions would pronounce success with respect to

increase in equity value. I have made an effort to judge the justifiability of merger on the

ground of value creation. In this purpose I have used DCF approach of business valuation.

As a result, the Equity Value of Dabur India Ltd. before acquiring “Amrutanjan Healthcare

Ltd.” was Rs. 14149.8 crore with enterprise value Rs. 14259 crore and Equity value of Target

was Rs. 366.5 crore with enterprise value Rs. 333 crore but post merger the equity value

reached Rs. 26,567.4 crore and Enterprise Value Rs. 26,644 crore which is much greater than

the combined equity value of both the companies hence, it is very likely that if Dabur plans

for acquiring such company, it would definitely create value for the shareholders of both the

companies.




TECHNOLOGY

FINANCIALS

A.1 DABUR – Balance Sheet

in Rs. Crore 2007 2008 2009

SOURCES OF FUNDS

Shareholder's funds

Share Capital 86.29 86.4 86.51

Reserve and Surplus 393.28 531.173 732.299

479.57 617.573 818.809

Minority Interest 4.47 4.75 4.577

Loan Funds

Secured Loans 120.38 97.56 95.651

Unsecured Loans 39.51 1.6 131.938

Deferred Tax Liability 25.9 27.28 30.485

TOTAL 669.83 748.769 1081.46

APPLICATION OF FUNDS

Fixed Assets

Gross Block 617.23 729.66 858.51

Less: Depreciation 238.07 264.41 299.34

Net Block 379.16 465.26 559.169

Capital Work in Progress 0 0 0

379.16 465.26 559.169

Investments 80.7 203.72 346.965

Deferred Tax Asset

24.007 23.531

Inventories 257.11 302.48 375.468

Sundry Debtors 141.97 172.32 177.88

Cash & Bank Balances 60.67 76.57 148.425

Interest Accrued 0 0 0

Loans & Advances 180.72 222.53 249.02

640.47 773.9 950.793


Provisions 90.24 274.1 325.995

451.76 732.07 807.645

Net Current Assets 188.71 41.84 143.15

Miscellaneous Expense 19.82 13.95 8.64

TOTAL 669.83 748.777 1081.455

A

P

P

E

N

D

I

X

A




TECHNOLOGY

A.2 DABUR – P&L Account

DABUR 2007 2008 2009

Income

Sales Turnover 2,080.24 2,396.29 2,834.11

Excise Duty 37.11 35.22 28.68

Net Sales 2,043.13 2,361.07 2,805.43

Other Income 25.91 34.01 46.84

Stock Adjustments 0 0 0

Total Income 2,069.04 2,395.08 2,852.27

Expenditure

Raw Materials 971.08 1,115.39 1,376.18

Manufacturing Expenses 74.26 85.767 99.179

Employee Cost 166.67 199.306 234.699

Financial Expense 15.37 16.798 23.208

Selling and Admin Expenses 481.38 551.26 624.916

Miscellaneous Expenses 6.49 5.66 4.38

Depreciation 34.29 36.43 44.85

Total Expenses 1,749.54 2,010.61 2,407.41

Net Operating PBT 319.50 384.46 444.86

Provision for Taxation - Current 34.94 42.77 49.938

Provision for Taxation - Deferred -1.36 0.75 -2.55

Provision for Taxation - Fringe Benefit 3.74 7.12 6.65

Net PAT and before Extraordinary Items 282.18 333.82 390.82

Credit Balance from merged entity 0 0.185 0

Net PAT and Extraordinary Items 282.18 334.01 390.82

Minority Interest -0.87 -0.13 -0.407

Net Profit after Minority Interest 283.05 334.14 391.23

Balance Brought Forward 215.86 322.7 433.77

Provision for taxation for earlier year written back 0.22 0.68 0.00011

Provision for taxation for earlier year -1.55 -1.66 0.71

Profit Available for appropriation 497.58 655.86 825.71

Appropriation / Allocation

Interim Dividend 122.12 64.8 64.88

Proposed Dividend - Final 0 64.8 86.51

Corporate Tax on Interim Dividend 17.12 11.01 11.02

Corporate Tax on Proposed Dividend 0 11.01 14.7

Transferred to Capital Reserve 3.34 0.4 0.00095

Transferred to Legal Reserve 0.19 0.003 0

Transferred to General Reserve 30 70 90

Balance Carried over to Balance Sheet 324.81 433.84 558.60

Earnings Per Share (Rs)

Basic 3.27 3.86 4.53

Diluted 3.24 3.83 4.51

No. of Shares

Basic 860884512 863826759 864907642

Diluted 869534762 868807461 869156529




TECHNOLOGY

A.3 Hindustan Unilever Ltd. – Balance Sheet

Balance Sheet ------------------- in Rs. Cr. -------------------

Dec '04 Dec '05 Dec '06 Dec '07 Mar '09

12 mths 12 mths 12 mths 12 mths 15 mths

Sources Of Funds

Total Share Capital 220.12 220.12 220.68 217.75 217.99

Equity Share Capital 220.12 220.12 220.68 217.75 217.99

Share Application Money 0 0 0 0 0

Preference Share Capital 0 0 0 0 0

Reserves 1,871.92 2,084.84 2,502.14 1,220.82 1,842.85

Revaluation Reserves 0.67 0.67 0.67 0.67 0.67

Net worth 2,092.71 2,305.63 2,723.49 1,439.24 2,061.51

Secured Loans 1,453.06 24.5 37.13 25.52 144.65

Unsecured Loans 18.06 32.44 35.47 63.01 277.3

Total Debt 1,471.12 56.94 72.6 88.53 421.95

Total Liabilities 3,563.83 2,362.57 2,796.09 1,527.77 2,483.46

Application Of Funds

Gross Block 2,314.22 2,375.11 2,462.69 2,669.08 2,881.73

Less: Accum. Depreciation 891.08 989.61 1,061.94 1,146.57 1,274.95

Net Block 1,423.14 1,385.50 1,400.75 1,522.51 1,606.78

Capital Work in Progress 94.42 98.03 110.26 185.64 472.07

Investments 2,229.56 2,148.72 2,522.22 1,440.81 332.62

Inventories 1,470.44 1,321.77 1,547.71 1,953.60 2,528.86

Sundry Debtors 489.27 522.83 440.37 443.37 536.89

Cash and Bank Balance 102.98 103.77 170.8 200.11 190.59

Total Current Assets 2,062.69 1,948.37 2,158.88 2,597.08 3,256.34

Loans and Advances 1,013.04 902.04 1,150.06 1,083.28 1,196.95

Fixed Deposits 595.07 251.26 246.15 0.75 1,586.76

Total CA, Loans & Advances 3,670.80 3,101.67 3,555.09 3,681.11 6,040.05

Deferred Credit 0 0 0 0 0

Current Liabilities 2,730.64 3,077.97 3,362.52 4,028.41 4,440.08

Provisions 1,123.46 1,293.39 1,429.71 1,273.90 1,527.98

Total CL & Provisions 3,854.10 4,371.36 4,792.23 5,302.31 5,968.06

Net Current Assets -183.3 -

1,269.69 -

1,237.14 -

1,621.20 71.99

Miscellaneous Expenses 0 0 0 0 0

Total Assets 3,563.82 2,362.56 2,796.09 1,527.76 2,483.46

Contingent Liabilities 476.41 468.33 476.4 494.46 417.26

Book Value (Rs) 9.5 10.47 12.34 6.61 9.45




TECHNOLOGY

A.4 Hindustan Unilever Ltd. – P&L Account

Profit & Loss account ------------------- in Rs. Cr. -------------------

Dec '04 Dec '05 Dec '06 Dec '07 Mar '09


Income

Sales Turnover 10,996.72 12,108.86 13,189.70 14,937.88 21,927.23

Excise Duty 939.61 914.98 945.68 1,057.32 1,422.95

Net Sales 10,057.11 11,193.88 12,244.02 13,880.56 20,504.28

Other Income 171.12 218.01 512.6 428.37 276.54

Stock Adjustments -76.69 -48.12 129.97 162.06 434.33

Total Income 10,151.54 11,363.77 12,886.59 14,470.99 21,215.15

Expenditure

Raw Materials 5,413.77 6,170.98 6,687.30 7,542.78 11,380.05

Power & Fuel Cost 164.77 168.74 180.79 198.89 301.37

Employee Cost 574.84 591.32 642.81 767.81 1,152.12

Other Manufacturing Expenses 193.84 191.82 187.37 204.1 297.34

Selling and Admin Expenses 1,713.73 2,010.10 2,328.51 2,561.12 3,857.48

Miscellaneous Expenses 377.93 429.09 541.52 691.49 985.31

Preoperative Exp Capitalized 0 0 0 0 0

Total Expenses 8,438.88 9,562.05 10,568.30 11,966.19 17,973.67

Operating Profit 1,541.54 1,583.71 1,805.69 2,076.43 2,964.94

PBDIT 1,712.66 1,801.72 2,318.29 2,504.80 3,241.48

Interest 129.98 19.19 10.73 25.5 25.32

PBDT 1,582.68 1,782.53 2,307.56 2,479.30 3,216.16

Depreciation 120.9 124.45 130.16 138.36 195.3

Other Written Off 0 0 0 0 0

Profit Before Tax 1,461.78 1,658.08 2,177.40 2,340.94 3,020.86

Extra-ordinary items 56.29 44.04 -0.21 1.67 48.53

PBT (Post Extra-ord Items) 1,518.07 1,702.12 2,177.19 2,342.61 3,069.39

Tax 320.74 294 321.8 417.14 572.94

Reported Net Profit 1,197.34 1,408.10 1,855.37 1,769.06 2,500.71

Total Value Addition 3,025.11 3,391.08 3,881.00 4,423.41 6,593.62

Preference Dividend 0 0 0 0 0

Equity Dividend 1,100.62 1,100.62 1,325.48 1,976.12 1,634.51

Corporate Dividend Tax 145.53 159.62 185.9 355.5 277.79

Per share data (annualized)

Shares in issue (lakhs) 22,012.44 22,012.44 22,067.76 21,774.63 21,798.76

Earnings Per Share (Rs) 5.44 6.4 8.41 8.12 11.47

Equity Dividend (%) 500 500 600 900 750

Book Value (Rs) 9.5 10.47 12.34 6.61 9.45




TECHNOLOGY

A.5 Godrej Consumer Product Ltd. – Balance Sheet


Mar '05 Mar '06 Mar '07 Mar '08 Mar '09


Sources Of Funds





Reserves 27.21 53.57 88.32 127.91 511.22

Revaluation Reserves 0 0 0 0 0

Net worth 49.85 76.15 110.9 150.49 536.92

Secured Loans 4.13 4.87 47.86 40.59 14.89

Unsecured Loans 2 0 65 94 48

Total Debt 6.13 4.87 112.86 134.59 62.89

Total Liabilities 55.98 81.02 223.76 285.08 599.81


Gross Block 179.88 159.21 243.65 265.56 266.54

Less: Accum. Depreciation 79.12 86.39 95.52 110.98 96.75

Net Block 100.76 72.82 148.13 154.58 169.79


Investments 0 50.01 71.79 77.61 97.89

Inventories 73.81 87.89 117.23 164.91 126.67

Sundry Debtors 5.18 6.52 9.8 12.2 9.86


Total Current Assets 87.96 107.9 148.09 195.8 160.2

Loans and Advances 16.17 14.18 46.93 66.78 126.14

Fixed Deposits 0 0.24 0.67 1.15 320.89

Total CA, Loans & Advances 104.13 122.32 195.69 263.73 607.23


Current Liabilities 141.93 163.47 223.43 254.75 244.67

Provisions 7.61 7.72 8.21 30.53 32.94

Total CL & Provisions 149.54 171.19 231.64 285.28 277.61

Net Current Assets -45.41 -48.87 -35.95 -21.55 329.62

Miscellaneous Expenses 0 0 0 2.87 0

Total Assets 56.01 81.02 223.78 285.09 599.8


Book Value (Rs) 8.81 13.49 4.91 6.66 20.9




TECHNOLOGY

A.6 Godrej Consumer Products Ltd. – P&L Account




Income

Sales Turnover 603.46 691.92 799.41 922.78 1,135.37

Excise Duty 40.79 36.3 38.56 30.86 39.5

Net Sales 562.67 655.62 760.85 891.92 1,095.87

Other Income 2.6 8.12 12.35 -3.34 38.71

Stock Adjustments 14.8 12.45 24.22 13.99 -20.91

Total Income 580.07 676.19 797.42 902.57 1,113.67

Expenditure

Raw Materials 297.6 320.17 396.35 436.8 606.74

Power & Fuel Cost 16.43 20.99 23.94 24.53 35.49

Employee Cost 32.9 43.15 40.5 54.6 58.44


Selling and Admin Expenses 108.93 119.74 140.67 162.18 173.08



Total Expenses 474.28 529.69 632.82 707.27 904.56

Operating Profit 103.19 138.38 152.25 198.64 170.4

PBDIT 105.79 146.5 164.6 195.3 209.11

Interest 1.36 4.44 7.59 10.38 8.82

PBDT 104.43 142.06 157.01 184.92 200.29

Depreciation 10.66 10.78 12.49 15.7 14.37


Profit Before Tax 93.77 131.28 144.52 169.22 185.92

Extra-ordinary items 3.53 0.5 4.81 0 0.64

PBT (Post Extra-ord Items) 97.3 131.78 149.33 169.22 186.56

Tax 7.69 10.57 17.18 21.12 25.01

Reported Net Profit 89.59 121.2 122.03 148.12 161.55

Total Value Addition 176.69 209.52 236.46 270.47 297.81


Equity Dividend 67.93 79.05 84.69 92.76 102.98



Shares in issue (lakhs) 566.04 564.61 2,258.44 2,258.44 2,569.54


Equity Dividend (%) 300 350 375 400 400

Book Value (Rs) 8.81 13.49 4.91 6.66 20.9




TECHNOLOGY

A.7 Marico – Balance Sheet




Sources Of Funds

Total Share Capital 58 58 60.9 60.9 60.9

Equity Share Capital 58 58 60.9 60.9 60.9



Reserves 160.54 219.36 122.59 219.33 306.78


Net worth 218.54 277.36 183.49 280.23 367.68

Secured Loans 3.25 203.25 50.48 121.23 107.51

Unsecured Loans 49.14 20.26 116.77 184.36 201.02

Total Debt 52.39 223.51 167.25 305.59 308.53



Gross Block 170.41 402.11 213.87 228.89 262.16


Net Block 89.11 289.55 95.06 96.99 115.91


Investments 29.09 36.39 80.91 106.52 112.58

Inventories 112.47 119.59 196.21 218.59 273.69

Sundry Debtors 35.36 49.53 41.29 41.68 61.05




Fixed Deposits 4.13 2.15 2.52 22.18 11.59




Provisions 15.06 19.52 12.77 42.63 30.87


Net Current Assets 141.08 155.96 165.8 333.21 402.11


Total Assets 270.93 500.87 350.74 585.82 676.21


Book Value (Rs) 37.68 47.82 3.01 4.6 6.04




TECHNOLOGY

A.8 Marico – P & L Account




Income

Sales Turnover 953.23 1,046.47 1,375.60 1,578.10 1,923.92

Excise Duty 5.21 1.31 2.33 2.11 2.07

Net Sales 948.02 1,045.16 1,373.27 1,575.99 1,921.85

Other Income 8.04 7.87 2.79 2.89 -47.3

Stock Adjustments 0.99 5.82 41.14 25.24 27.79

Total Income 957.05 1,058.85 1,417.20 1,604.12 1,902.34

Expenditure

Raw Materials 602.95 579.88 790.72 918.13 1,184.82

Power & Fuel Cost 3.97 4.13 4.97 5.38 5.53

Employee Cost 42.14 62.16 66.83 77.18 84.18





Total Expenses 867.11 916.13 1,225.25 1,392.17 1,680.24


PBDIT 89.94 142.72 191.95 211.95 222.1

Interest 3.03 5.02 20.01 19.75 28.92

PBDT 86.91 137.7 171.94 192.2 193.18

Depreciation 11.6 33.23 35.19 18.93 17.03





Tax 5.85 7.83 28.43 29.86 52.37



Preference Dividend 0 0 1.65 0 0

Equity Dividend 31.03 35.96 39.06 39.89 39.89



Shares in issue (lakhs) 580 580 6,090.00 6,090.00 6,090.00


Equity Dividend (%) 53.5 62 65.5 65.5 65.5

Book Value (Rs) 37.68 47.82 3.01 4.6 6.04




TECHNOLOGY

A.9 Emami – Balance Sheet




Sources Of Funds



Share Application Money 0 0 0.2 0 0.7


Reserves 66.02 84.4 216.99 276.57 282.9

Revaluation Reserves 238.59 238.59 0 0 0

Net worth 316.84 335.22 229.42 289 296.03

Secured Loans 33.76 31.24 22.81 35.19 373.06

Unsecured Loans 0.22 0.22 0.36 0 67.02

Total Debt 33.98 31.46 23.17 35.19 440.08



Gross Block 320.21 321.96 68.59 105.73 706.44


Net Block 214.58 193.17 46.8 77.82 612.57


Investments 53.91 87.1 78.18 102.97 39.89

Inventories 36.75 36.62 41.2 40.1 73.2

Sundry Debtors 35.25 36.68 45.77 34.03 50.75




Fixed Deposits 0.03 0.02 15.04 0.04 0.06




Provisions 6.97 18.61 17.63 46.8 52.02




Total Assets 350.81 366.67 252.61 324.2 736.1


Book Value (Rs) 12.8 15.8 37.49 46.5 47.52




TECHNOLOGY

A.10 Emami – P&L Account




Income

Sales Turnover 225.62 307.37 519.22 585.9 739.6

Excise Duty 6.77 6.5 3.43 2.19 17.25

Net Sales 218.85 300.87 515.79 583.71 722.35

Other Income 1.68 5.65 13.91 21.62 5.86

Stock Adjustments 3.48 -1.85 -0.65 -0.52 11.58

Total Income 224.01 304.67 529.05 604.81 739.79

Expenditure

Raw Materials 129.81 173.85 225.56 248.14 321.17

Power & Fuel Cost 1.03 1.21 1.15 1.29 3.42

Employee Cost 11.89 14.47 21.95 31.18 44.69





Total Expenses 187.62 246.35 448.84 487.18 598.22


PBDIT 36.39 58.32 80.21 117.63 141.57

Interest 2 1.41 1.08 5.43 31.57

PBDT 34.39 56.91 79.13 112.2 110

Depreciation 2.97 6.69 4.65 7.28 17.89





Tax 2.09 0.95 8.57 12.18 14.5




Equity Dividend 6.12 12.23 24.86 27.97 34.05



Shares in issue (lakhs) 611.5 611.5 611.5 621.45 621.45


Equity Dividend (%) 50 100 200 225 225

Book Value (Rs) 12.8 15.8 37.49 46.5 47.52




TECHNOLOGY

A.11 Colgate Palmolive – Balance Sheet




Sources Of Funds





Reserves 113.78 135.08 144.53 148.61 202.7


Net worth 249.77 271.07 280.52 162.21 216.3

Secured Loans 0 0 0 0 0

Unsecured Loans 3.98 4.36 4.28 4.69 4.69

Total Debt 3.98 4.36 4.28 4.69 4.69



Gross Block 324.45 403.54 411.46 449.59 425.26


Net Block 79.75 160.03 167.68 191.4 173.93


Investments 160.78 148.34 133.34 72.59 38.33

Inventories 74.47 74.36 80.33 75.64 82.42

Sundry Debtors 17.35 7.4 9.33 9.19 11.13




Fixed Deposits 39.61 30.21 51.11 102.6 207.45




Provisions 97.11 68.74 106.93 187.27 161.19


Net Current Assets -57.8 -42.03 -40.56 -104.68 4.05

Miscellaneous Expenses 3.56 0 0 0 0

Total Assets 253.75 275.43 284.8 166.9 220.98


Book Value (Rs) 18.37 19.93 20.63 11.93 15.9




TECHNOLOGY

A.12 Colgate Palmolive – P&L Account

Profit & Loss account of Colgate Palmolive (India) ------------------- in Rs. Cr. -------------------



Income

Sales Turnover 1,072.53 1,237.99 1,421.18 1,597.30 1,810.65

Excise Duty 111.05 89.96 89.19 78.42 59.89

Net Sales 961.48 1,148.03 1,331.99 1,518.88 1,750.76

Other Income 24.56 17.09 -28.32 23.91 35.07

Stock Adjustments 13.13 -7.54 4.51 0.76 1.04

Total Income 999.17 1,157.58 1,308.18 1,543.55 1,786.87

Expenditure

Raw Materials 496.71 533.72 586.04 639.13 750.79

Power & Fuel Cost 3.75 6.68 7.63 7.74 11.1

Employee Cost 68.35 86.45 111.91 117.28 138.54





Total Expenses 796.64 934.02 1,086.14 1,244.83 1,422.83


PBDIT 202.53 223.56 222.04 298.72 364.04

Interest 4.54 4.24 5.17 1.44 1.1

PBDT 197.99 219.32 216.87 297.28 362.94

Depreciation 22.37 31.43 15.26 19.84 22.95



Extra-ordinary items 2.5 0 0 14.62 5.3


Tax 64.85 50.28 41.44 60.34 55.09




Equity Dividend 95.19 101.99 129.19 176.79 203.99



Shares in issue (lakhs) 1,359.93 1,359.93 1,359.93 1,359.93 1,359.93


Equity Dividend (%) 70 75 95 1,300.00 1,500.00

Book Value (Rs) 18.37 19.93 20.63 11.93 15.9




TECHNOLOGY

A.13 GlaxoSmithKline – Balance Sheet


Dec '05 Dec '06 Dec '07 Dec '08 Dec '09


Sources Of Funds





Reserves 433.06 500.66 604.29 718.82 863.04


Net worth 475.12 542.72 646.35 760.88 905.1



Total Debt 0 0 0 0 0



Gross Block 506.91 521.69 523.68 539.47 558.48

Less: Accum. Depreciation 233.95 270.32 297.65 329.24 364

Net Block 272.96 251.37 226.03 210.23 194.48


Investments 0 219.68 297.84 0 0

Inventories 131.04 145.57 194.82 277.17 266.03

Sundry Debtors 24.12 28.09 27.36 43.25 31.36




Fixed Deposits 153.52 11.5 61.5 450.5 783.2

Total CA, Loans & Advances 407.08 302.35 378 865.01 1,737.34



Provisions 6.28 20.32 29.17 62.45 670.71

Total CL & Provisions 215.76 237.2 272.82 330.69 1,064.50



Total Assets 475.11 542.73 646.36 760.88 905.11


Book Value (Rs) 112.97 129.05 153.69 180.92 215.21




TECHNOLOGY

A.14 GlaxoSmithKline – P&L Account


Dec '05 Dec '06 Dec '07 Dec '08 Dec '09


Income

Sales Turnover 1,095.24 1,240.62 1,429.97 1,742.84 2,077.22

Excise Duty 124.43 101.34 122.09 158.51 100.25

Net Sales 970.81 1,139.28 1,307.88 1,584.33 1,976.97

Other Income 16.47 24.55 31.67 47.79 34.96

Stock Adjustments 38.09 1.45 27.34 45.87 13.83

Total Income 1,025.37 1,165.28 1,366.89 1,677.99 2,025.76

Expenditure

Raw Materials 352.69 387.58 471.61 633.48 729.61

Power & Fuel Cost 27.34 29.93 30.44 44.24 39.64

Employee Cost 121.45 136.38 154.94 171.95 200.7





Total Expenses 815.7 927.76 1,072.93 1,342.21 1,623.62


PBDIT 209.67 237.52 293.96 335.78 402.14

Interest 4.22 3.53 4.61 6.97 4.27

PBDT 205.45 233.99 289.35 328.81 397.87

Depreciation 41.85 42.71 43.49 41.95 42.02





Tax 58.75 63.66 82.46 95.75 123.69




Equity Dividend 33.64 42.06 50.47 63.08 75.7





Equity Dividend (%) 80 100 120 150 180

Book Value (Rs) 112.97 129.05 153.69 180.92 215.21




TECHNOLOGY

A.15 P&G – Balance Sheet


Jun '05 Jun '06 Jun '07 Jun '08 Jun '09


Sources Of Funds





Reserves 193.22 240.2 258.72 314.18 407.58


Net worth 225.68 272.66 291.18 346.64 440.04



Total Debt 0 0 0 0 0



Gross Block 178.76 127.01 163.62 203.09 221.82


Net Block 79.07 65.37 94.01 123.08 132.28


Investments 0.01 0 0 0 0

Inventories 54.9 28.31 31.36 46.52 53.98

Sundry Debtors 43.48 8.77 14.64 13.34 22.51




Fixed Deposits 178.26 191.27 24.89 159.81 0




Provisions 150.38 95.56 79.13 82.03 90.5




Total Assets 225.69 272.65 291.18 346.64 440.02


Book Value (Rs) 69.52 84 89.7 106.79 135.56




TECHNOLOGY

A.16 P&G – P&L Account


Jun '05 Jun '06 Jun '07 Jun '08 Jun '09


Income

Sales Turnover 738.1 596.75 552.95 652.65 773.03

Excise Duty 56.1 30.98 15.37 8.7 0.22

Net Sales 682 565.77 537.58 643.95 772.81

Other Income 25.86 28.01 15.99 13.53 38.73

Stock Adjustments 11.65 -13.08 1.8 13.18 4.1

Total Income 719.51 580.7 555.37 670.66 815.64

Expenditure

Raw Materials 332.36 182.86 152.54 190.78 239.68

Power & Fuel Cost 6.85 5.52 5.66 8.26 7.84

Employee Cost 37.37 33.99 37.72 54.65 34.64


Selling and Admin Expenses 84.62 90.92 103.61 131.29 0



Total Expenses 559.82 423.7 400.89 478.43 569.6


PBDIT 159.69 157 154.48 192.23 246.04

Interest 0.05 0.11 0.01 0.02 0

PBDT 159.64 156.89 154.47 192.21 246.04

Depreciation 12.4 7.92 8.98 12.12 14.37



Extra-ordinary items 25.79 44.36 -10.72 0.48 0


Tax 48.42 53.83 44.96 49.15 52.81




Equity Dividend 129.84 81.15 64.92 64.92 73.04





Equity Dividend (%) 400 250 200 200 225

Book Value (Rs) 69.52 84 89.7 106.79 135.56




TECHNOLOGY

A.17 AMRUTANJAN – Balance Sheet

in Rs. Crore 2007 2008 2009

SOURCES OF FUNDS

Shareholder's funds

Share Capital 3.2 3.2 3.1

Reserve and Surplus 19.99 22.25 90.72

23.19 25.45 93.82

Minority Interest

Loan Funds

Secured Loans 7.69 6.46 2.06

Unsecured Loans

2 0

7.69 8.46 2.06

Deferred Tax Liability 2.1 4 32.16

TOTAL 32.99 37.92 97.24

APPLICATION OF FUNDS

Fixed Assets

Gross Block 25.43 33.52 24.71

Less: Depreciation 12.88 14.25 8.81

Net Block 12.56 19.28 15.9

Capital Work in Progress 2.71 2.59 2.29

15.26 21.86 18.19

Investments 0.11 0.43 0.43

Deferred Tax Asset

Current Assets, Loans and Advances

Inventories 8.86 9.4 5.31

Sundry Debtors 4.96 7.59 12.94

Cash & Bank Balances 7.82 2.69 67.51

Interest Accrued 0.07 0.02 0.79

Loans & Advances 4.1 5.44 5.83

25.83 25.16 92.39

Less Current Liabilities and Provisions


Provisions 0.97 1.45 5.44

8.21 9.52 13.76

Net Current Assets 17.61 15.63 78.63

Miscellaneous Expense 0 0 0

TOTAL 32.98 37.92 97.25




TECHNOLOGY

A.18 AMRUTANJAN – P&L Account

INCOME 2007 2008 2009 Sales 72.38 74.55 90.66

Other Income 0.989 0.39 6.95

73.37 74.95 97.61

EXPENDITURE

Cost of Materials Consumed 26.77 29.33 36.95

Employee's Renumeration and Benefits 8.97 9.41 10.94

Interest 0.54 0.747 0.15

Other Expenses 21.23 24.01 29.36

Depreciation 1.52 1.46 1.48

59.04 64.97 78.89

Profit before extraordinary items 14.33 9.97 18.72

Loss on destruction of assets -0.07

Prior Year Adjustments (net) 0.02 -0.03 -0.04

Profit for the year before tax 14.27 9.94 18.68

Provision for Taxation

Income Tax -4.8 -1.45 -7

Fringe Benefit Tax -0.14 -0.25 -0.3

Deferred Tax 0.17 -1.95 0.78

Short Provision of I.T. of eaarlier years -0.24 -0.035 -0.057

Profit after tax before exceptional items 9.27 6.26 12.11

Exceptional Items -0.13 -1.27 80.75

Provision for advances

Provision for diminution in value of investments -3.22

Profit after Tax after exceptional items 5.91 4.98 92.85

Surplus from previous year brought forward 1.28 2.99 3.36

Profits for Appropriation 7.199 7.98 96.21

APPROPRIATION

General Reserve 2 2 50

Special one time interim dividend - Paid

0 12.8

Tax on special one time interim dividend

0 2.18

Interim Dividend - Paid 1.28 1.28 1.57

Tax on Interim Dividend 0.179 0.217 0.267

Final Dividend - Proposed 0.64 0.96 3.63

Tax on Proposed Dividend 0.11 0.16 0.61

4.21 4.62 71.07

Balance Profit carried to Balance Sheet 2.99 3.36 25.14

7.19 7.98 96.22

Basic and Diluted Earnings per share

Before exceptional items (Rs) 28.97 19.57 38.07

After exceptional items (Rs.) 18.48 15.59 291.98




TECHNOLOGY

FORMULAS USED

Working Capital Days = 365 / working capital turnover

Working capital turnover = Revenue / net working capital

Net Working Capital = (Current Assets – Cash) – (Current Liabilities – debt)

Cost of Equity = Risk free rate + Levered Beta * (India Equity risk premium)

India Equity Risk Premium = India - Country Risk Premium + Equity Risk Premium US

Cost of Debt = Interest / Loan funds

WACC = cost of equity*Shareholders‟ equity + cost of debt*debt

Levered Beta = Unlevered Beta * [1 + (1 - Tax Rate) * Debt / Equity ]

Adjusted Beta = (Unlevered Beta * 2/3)+(1/3)

Discount Factor = 1/(1+WACC)T

FCF = EBIT + Depreciation + Amortization – Taxes – Capex – Increase in Net

working capital

CAPEX = Change in Fixed Asset + Depreciation

Terminal Value = Projected FCF*(1+terminal growth rate)/(WACC – terminal growth

rate)

Enterprise Value = Market Cap + Debt – Cash

A

P

P

E

N

D

I

X

B




TECHNOLOGY

ABBREVIATIONS

1. NSE – National Stock Exchange

2. BSE – Bombay Stock Exchange

3. WACC – Weighted Average Cost of Capital

4. FMCG – Fast Moving Consumer Goods

5. COGS – Cost of Goods Sold

6. CAPEX – Capital Expenditure

7. EV – Enterprise Value

8. MARKET CAP – Market Capitalization

9. EBITDA – Earnings Before Interest Tax Depreciation and Amortization

10. EBIT – Earnings Before Interest and Tax

11. PBT – Profit Before Tax

12. DMA – Days Moving Average

13. DCF – Discounted Cash Flow

14. D/E – Debt to Equity

15. BCG – Boston Consulting Group

16. PP&E – Property, plant and equipment

17. P&L A/c – Profit and Loss Account

A

P

P

E

N

D

I

X

C




TECHNOLOGY

PRINT MEDIA

“India Equity Research - FMCG” by AVENDUS dated March 08, 2010

“Changing Gears – The emerging states for FMCG in India” by Nielsen dated November 4, 2009

“Constant Change” by Nielsen dated November 6, 2009

“FMCG Sector – A road ahead” by FICCI and Technopak, July – August 2009

“Market Outlook - India Research” by Angel Securities Institutional Investment Services, May 6, 2010

“Rural India” by IIFL – a report of 1Q 2010.

Dabur India Ltd. Annual Report FY09

Dabur India Ltd. Investor Presentation 3QFY10 and 4QFY10

VALUATION: Measuring and Managing the Value of Companies - Fourth Edition by McKinsey & Company

Financial Management by Prasanna Chandra

R

E

F

E

R

E

N

C

E

S




TECHNOLOGY

ELECTRONIC MEDIA

http://www.hul.co.in

http://www.dabur.com

http://www.pg-india.com/hp/index.htm

http://www.colgate.com

http://www.gsk.com

http://www.godrejindia.com

http://www.marico.com

http://www.itcportal.com

http://www.nestle.in

http://www.bloomberg.com

http://www.indiainfoline.com

http://www.money.rediff.com

http://www.bseindia.com

http://www.nse-india.com

http://www.equitymaster.com

http://www.info.shine.com/Industry-Information/FMCG/780.aspx

http://www.moneycontrol.com

http://www.incademy.com/courses/Technical-analysis-II/Moving-averages/2/1032/10002

http://www.tradingeconomics.com/Economics/Government-Bond-Yield.aspx?Symbol=INR

http://www.pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

http://www.fmcg-marketing.blogspot.com/2007/11/pest-analysis.html

http://www.fmcgmarketers.blogspot.com/2008/07/fmcg-growth-drivers-and-category-trends.html

http://www.stockmarketsreview.com/pricetargets/fast_moving_consumer_goods_fmcg_sector_review_analysis

_and_recommendations_20090902/

http://www.hul.co.in/

http://www.dabur.com/

http://www.pg-india.com/hp/index.htm

http://www.colgate.com/

http://www.gsk.com/

http://www.godrejindia.com/

http://www.marico.com/

http://www.itcportal.com/

http://www.nestle.in/

http://www.bloomberg.com/

http://www.indiainfoline.com/

http://www.money.rediff.com/

http://www.bseindia.com/

http://www.nse-india.com/

http://www.equitymaster.com/

http://www.info.shine.com/Industry-Information/FMCG/780.aspx

http://www.moneycontrol.com/

http://www.incademy.com/courses/Technical-analysis-II/Moving-averages/2/1032/10002

http://www.tradingeconomics.com/Economics/Government-Bond-Yield.aspx?Symbol=INR

http://www.pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

http://www.fmcg-marketing.blogspot.com/2007/11/pest-analysis.html

http://www.fmcgmarketers.blogspot.com/2008/07/fmcg-growth-drivers-and-category-trends.html

http://www.stockmarketsreview.com/pricetargets/fast_moving_consumer_goods_fmcg_sector_review_analysis_and_recommendations_20090902/

http://www.stockmarketsreview.com/pricetargets/fast_moving_consumer_goods_fmcg_sector_review_analysis_and_recommendations_20090902/




TECHNOLOGY

DISCLAIMER

This report has been prepared on the basis of information, obtained from publicly available accessible resources.

I have not independently verified all the information given in this document. Accordingly, no representation or

warranty, express or implied is made as to accuracy, completeness or fairness of the information and opinion

contained in this report. The information given in this report is as of the date of this report and there can be no

assurance that future results or events will be consistent with this information. There is no representation that all

information relating to the context has been taken care off in the report and neither I undertake any obligation as

to the regular updating of the information as a result of new information, future events or otherwise. I will

accept no liability whatsoever for any loss arising directly or indirectly from the use of, reliance of any

information contained in this document or for any omission of the information. It is advised that prior to acting

upon this report independent consultation / advise may be obtained and necessary due diligence, investigation

etc may be done at your end. You may also contact me directly for any questions or clarifications at my end.

This report contain certain statements of future expectations and other forward-looking statements, including

those relating to company‟s business plans and strategy, their future financial condition and growth prospects. In

addition to statements which are forward looking by reason of context, the words „may, will, should, expects,

plans, intends, anticipates, believes, estimates, predicts, potential or continue‟ and similar expressions identify

forward looking statements. Actual results, performances or events may differ materially from these forward-

looking statements including the plans, objectives, expectations, estimates and intentions expressed in forward

looking statements. It is cautioned that the foregoing list is not exhaustive. This report should not be used as a

basis for any investment decision.

98997531 FMCG Sector Study and M a Perspective

Documents

balance sheetbalance

funds gross

manufacturing

fmcg sector

ordinary items

indian fmcg

consumer health

personnel