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Yield to Investors...................................................................................................................................68
Analysis of Corporate Governance Report................................................................................................69
Compliance with clause 49 of the Listing agreement............................................................................69
Analysis of the Management Discussion and Analysis Report requirements........................................69
Analysis of the implications of the information provided......................................................................70
Recommendations to the management n the strategic issues..............................................................70
Analysis of Directors’ Report.....................................................................................................................71
Brief Write-Up on the Sector and Future prospects of the Company........................................................74
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Chapter 1
INTRODUCTION
Brief Background
Dr. S.K. Burman set up Dabur India Limited in 1884 to produce and dispense Ayurvedic
medicines. In 1956 Dabur India (Dr. S.K. Burman) Pvt. Ltd became a full fledged company. It is s
a leading consumer goods company in India with a turnover of Rs. 2834.11 Crores (FY09) which
markets its products in over 60 countries.
It has many major products like the Dabur Chyawanprash which enjoys 65% market share,
Hajmola tablets which enjoys 75% market share, Dabur honey occupying 75% market share. It
has many product lines and many famous brands in each product line. The company’s roots in
the traditional Ayurvedic medicines give it a very Indian flavor in terms of the products that it
launches.
The major groups and subsidiaries of Dabur are:
Major strategic business units (SBU)
Subsidiary Group companies Step down subsidiaries
Consumer Care Division (CCD)Consumer Health Division (CHD)International Business Division (IBD)
Dabur International
Fem Care Pharma
Newu
Dabur Nepal Pvt Ltd (Nepal)Dabur Egypt Ltd (Egypt)Asian Consumer Care (Pakistan)African Consumer Care (Nigeria)Naturelle LLC (Ras Al Khaimah-UAE)Weikfield International (UAE) Jaquline Inc. (USA)Asian Consumer Care (Bangladesh)
Timeline of major milestones in the history of Dabur
1884 Dr. Burman set up Dabur in 1884 to produce and dispense Ayurvedic medicines.
1936 Dabur India (Dr. S.K. Burman) Pvt. Ltd. : It became a full fledged company
1986 Public Limited Company
Page 6 of 74
1996 3 separate divisions
2000 Turnover of Rs.1,000 crore
2008 Acquires Fem Care Pharma
Key Product Lines
Health Care Personal Care Oral CareDabur Chyawanprash Dabur ChyawanPrakash Dabur Chyawan Junior Dabur Honey Dabur Glucose-D
Hair Care Oil Amla Hair Oil Amla Flower Magic Vatika Enriched Coconut Hair Oil Vatika Enriched Almond Hair OilHair Care Shampoo Vatika Smooth and Silky Shampoo Vatika Root Strengthening Shampoo Vatica Black Shine Shampoo Vatika Dandruff Control Shampoo Dabur Total Protect Shampoo Vatika Smooth & Silky Conditioner Vatika Root Strengthening Conditioner
Dabur Red Toothpaste Babool Toothpaste Meswak Toothpaste Promise ToothpasteBabool Mint Fresh Gel
Skin Care Consumer Health Foods Home CareUveda Complete Fairness CreamUveda Moisturising Face WashUveda Clarifying Face WashGulabari Rose WaterGulabari Face FreshenerGulabari Moisturising CreamGulabari Moisturising Lotion
FINANCIAL ANALYSIS I: ANALYSIS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
Analysis of Balance Sheet
Horizontal Balance Sheet (Comparison 2008 and 2009)
2009 2008Increase/Decrease over
2008 (Rs. In lakhs) (Rs. In lakhs) (Rs. In lakhs) %ageSOURCES OF FUNDS : Shareholder's Funds Share Capital 8,650.76 8,640.23 10.53 0.12 Reserves Total 65,168.91 44,192.11 20,976.80 47.47Total Shareholder's Funds 73,819.67 52,832.34 20,987.33 39.72Loan Funds: Secured Loans 825.56 1,644.72 (819.16) (49.81)
Unsecured Loans 13,071.69 88.97 12,982.7214,592.2
4Deferred tax Liability 3,048.50 2,727.97 320.53 11.75Total Liabilities 90,765.42 57,294.00 33,471.42 58.42 APPLICATION OF FUNDS : Fixed Assets Gross Block 57,048.09 48,419.78 8,628.31 17.82 Less : Accumulated Depreciation 21,044.98 18,976.77 2,068.21 10.90 Net Block 36,003.11 29,443.01 6,560.10 22.28Investments 43,689.59 27,037.13 16,652.46 61.59Deferred Tax Assets 2,353.09 2,400.74 (47.65) (1.98)Current Assets, Loans and Advances: Inventories 26,171.64 20,114.69 6,056.95 30.11 Sundry Debtors 11,236.01 10,046.43 1,189.58 11.84 Cash and Bank 14,368.48 6,826.46 7,542.02 110.48 Loans and Advances 22,728.33 18,293.75 4,434.58 24.24Total Current Assets 74,504.46 55,281.33 19,223.13 34.77Less : Current Liabilities and Provisions Current Liabilities 35,138.71 31,722.51 3,416.20 10.77 Provisions 31,510.20 26,540.97 4,969.23 18.72Total Current Liabilities 66,648.91 58,263.48 8,385.43 14.39
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Net Current Assets 7,855.55 (2,982.15) 10,837.70 (363.42)Miscellaneous Expenses not written off 864.08 1,395.27 (531.19) (38.07)TOTAL 90,765.42 57,294.00 33,471.42 58.42
Application of Funds
Fixed assets of Dabur
Dabur owns fixed assets worth 360.03 crores at depreciated value compared to last year’s
294.43 crores . Within the fixed assets plant and machinery, that is, assets directly needed for
production stands at 133.75 crores i.e. 37% of the total fixed assets. Next is the amount
invested in buildings i.e. 117.17 crores. The company has invested substantially higher in
buildings.
The advance against capital goods worth 591.77 lakhs has been included in the total fixed
assets. However this have not been received yet. It may be observed that no depreciation has
been provided on freehold land and livestock. The company has almost negligibly increased
leasehold land while substantially increasing the freehold land from last year.
Investments FY 08- 270 crores, FY 09- 437 Crores
Dabur’s investments are more than its fixed assets by almost 76 crores totaling to 436 crores.
The total investment is a substantial figure compared to the total asset size. It has invested
almost 117 crores in mutual funds while it has invested 21.5 crores in government bonds. Thus
it can be said that the co. carries surplus cash in business which it utilizes in investing. The co.
believes in investments. The co has also invested almost 87 crores in its subsidiaries.
Finally the main reason for the 62% increase in its investments from last year is the advance
paid against the equity shares of Fem Care Pharma Ltd which Dabur has proposed to acquire. It
totals to almost 205 crores. Thus the company has taken a significant step towards expanding
its business by taking the decision to acquire to FEM.
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Current Assets, loans and advances
The company has reported debtors of 236 crores while the total sales is around 2400 crores. So
comparatively it is a smaller picture. Also the debts which are considered doubtful is around 12
crores, which is a small figure compared to total debtors.Also it can be seen that the co. has
invested around 100 crores in fixed deposits.
Dabur has around 31.5 crores in cash balances. They constitute an insignificant part of the
current assets,although they play a crucial role in operations.
Loans and advances of Dabur is around 227 crores which includes security deposits with various
authorities and advance payment of tax as a major constituent. The debtors which are
outstanding for a period exceeding six months are mostly considered doubtful, hence a
provision has been made for them. No provision has been made for the debtors for a period of
less than six months. In the notes to accounts it has also been stated that In the opinion of
Board, the Current Assets, Loans and Advances have realizable value at least equal to the
amount at which they are stated. It has also been stated that the Debts due from
director/officer of the company is nil.
Miscellaneous Expenditure
It has come down from 13.95 crores to 8.64 crores on account of writing off. The technical
knowhow fees has been fully amortised, while the deferred employee compensation under
ESOP has also been amortised substantially, therefore bringing down the misc. expenditure.
Current Liabilities and Provisions
In current liabilities, out of 351 crores the sundry creditors for expense forms a major part of
194 crores. The sundry creditors for goods is 108 crores which is very minimum figure
compared to purchases and is almost half the amount of debtors. Hence it can be said that the
co. likes to make payments to the creditors at the earliest.
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Out of 315 crores of provisions, 159 crores is for taxation while 86.5 crores is for the dividend
proposed. The co also has provisions for corporate tax on proposed dividend, liabilities
disputed, Gratuity, Leave Salary.
Thus the company has a net asset or net working capital of 78.5 crores which means the
company can continue its day to day functions in an efficient manner.
Deferred tax assets and liabilities
The company has shown the deferred tax liability as an independent figure in the sources of
funds which amounts to 30.48 crores while it has shown the deferred tax assets in the
application of funds which amounts to 23.53 crores. The net deferred tax liability is 6.95 crores.
Sources of Funds
Share Capital
(in lacs) 2006 2007 2008 20090
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
5733.03
8628.84 8640.23000000001 8650.76
Series 1
The authorized share capital of the company was 12500 lack equity shares@1 each till 2007.
During the year 2007 the authorized share capital of the company has been increased by Rs.
2000 lakhs, pursuant to merger of Dabur Foods Limited. Thereafter the authorized share capital
of the company continues to be 14500 lakhs @1each.
Change in Capital Structure and Listing of shares
The equity share capital has gone up in the year 2007 because of the following reasons.
2472137 equity shares allotted under Employees Stock Option Scheme
63,336 shares allotted under Merger scheme with erstwhile Balsara Hygiene Products
Page 23 of 74
28,70,45,551 equity shares allotted on 12th February, 2007 as bonus shares by way of
capitalization of the free reserves (469066351 shares) and from share premium account
(286651392 shares)
The issuance of bonus shares had an impact on the Reserve and surplus which has come down
from last year .one of the reasons was because of the issue.
In the year FY07 and FY08 there has not a significant change in share capital.
Reserve and Surplus:
(in lakhs)
2006 2007 2008 20090
10000
20000
30000
40000
50000
60000
70000
39053.84
31690.08
44192.11
65168.91
The increase in reserves and surplus in 2009 is mainly because of the increase in general
reserves and profit and loss account balance.
Capital reserves: The Company has kept on increasing the capital reserves throughout the 4
years and has not utilized any amount from it. The increase has come mainly from transfer from
P/L acc, while in 2007 the company has transferred some amount from the merged Entities.
Share premium Account: Has come down significantly in 07 from 06 because of utilization in
merger. In 08 and 09 the account has increased slightly because of premium on issue of shares.
General Reserve: Large amount has been utilized for merger and also for the issuance of bonus
shares. So it has come down in 07 and has been rising thereafter because there has not been
Page 24 of 74
anymore issue of bonus shares or merger. It is also seen that the company has steadily
increased the transfer from P/L acc to general reserve throughout the years.
Profit and loss acc: The transfer of the remaining profits from the P/L account has risen steadily
over the years. This indicates that the profit of the company has been rising over the years.
Secured Loans
Secured loans of Dabur have come down from 16.44 crores to 8.25 crores. The company has
taken term loans and short term loans from banks. The company has repaid almost half of the
loans in the year, thus the figure for secured loans has come down. The proportion of secured
loans to other sources of funds is very small, suggesting that the company does not depend
much on loan funds. However this year the co has taken some unsecured loans which we will
analyze in the next heading
Unsecured Loans
The company’s unsecured loans have risen from less than 1 crores to 130.7 crores. The co has
taken short term loan from bank to the tune of 110 crores and that the company has taken
almost negligible unsecured loans. The company might be looking to fund some project so it
has taken an unsecured loan this time.
Overall Comment
If we look at the balance sheet we will find that the company is not highly leveraged. It depends
more on internal sources of funds than external sources. The reserves and surplus of the co has
become very high as compared to share cap, thus there is a possibility of bonus shares being
issued in future. The company has very high investments compared to fixed assets and the co
has positive net current assets. This is a good sign for the company.
Page 25 of 74
Analysis of Profit and Loss Account
Horizontal Profit & Loss Account (Comparison 2008 and 2009)
2009 2008Increase/Decrease over
2008 (Rs. In lakhs) (Rs. In lakhs) (Rs. In lakhs) %age Less Excise Duty 2,751.50 3,439.26 (687.76) (20.00) Net Sales 239,616.39 208,339.60 31,276.79 15.01 Other Income 4,306.04 2,790.86 1,515.18 54.29 Total Income 243,922.43 211,130.46 32,791.97 15.53 EXPENDITURE : Cost of Materials 122,243.11 102,833.54 19,409.57 18.87 Manufacturing Expenses 7,076.13 6,985.57 90.56 1.30 Payments to and Provisions for Employees 16,732.46 14,969.23 1,763.23 11.78 Selling and Administrative Expenses 50,901.37 45,827.98 5,073.39 11.07 Financial Expenses 1,333.55 854.50 479.05 56.06 Miscellaneous Expenditure Written Off 394.18 566.79 (172.61) (30.45) Depreciation 2,742.04 2,575.26 166.78 6.48 Total Expenditure 201,422.84 174,612.87 26,809.97 15.35 Balance being Operating Net Profit before Taxation 42,499.59 36,517.59 5,982.00 16.38 Provision for Taxation : Current 4,748.45 4,057.25 691.20 17.04
Deferred (255.09) 75.32 (330.41)(438.67
) Fringe Benefit 650.97 707.81 (56.84) (8.03) Net Profit after Taxation and before Extraordinary Items 37,355.26 31,677.21 5,678.05 17.92 Credit Balance Transferred from Merged Entity 0.00 18.58 (18.58)
(100.00)
Net Profit after Taxation and Extraordinary Item 37,355.26 31,695.79 5,659.47 17.86 Balance Brought Forward 32,322.99 22,915.65 9,407.34 41.05 Provision for Taxation of earlier years written back 0.11 68.55 (68.44) (99.84) Provision for Taxation for earlier year 71.68 154.19 (82.51) (53.51) 69,606.68 54,525.80 15,080.88 27.66
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Appropriations Interim Dividend 6,488.07 6,480.05 8.02 0.12 Proposed Final Dividend 8,650.76 6,480.17 2,170.59 33.50 Corporate Tax on Interim Dividend 1,102.65 1,101.28 1.37 0.12 Corporate Tax on Proposed Dividend 1,470.20 1,101.31 368.89 33.50 Transferred to Capital Reserve 0.95 40.00 (39.05) (97.63) Transferred to General Reserve 9,000.00 7,000.00 2,000.00 28.57 Balance carried over to Balance Sheet 42,894.05 32,322.99 10,571.06 32.70 69,606.68 54,525.80 15,080.88 27.66 Earning per share (in Rs.) (Face Value Re 1/- each) Basic 4.32 3.66 0.66 18.03 Diluted 4.31 3.64 0.67 18.41 No of Shares Basic 864,907,642.00 863,826,759.00 1,080,883.00 0.13 Diluted 869,156,259.00 868,807,461.00 348,798.00 0.04
Sales and other income
The sales figure of the company has risen from 201,293.09 lacs to 230,162.64 lacs, thereby
registering a growth rate of 14%. Also the exports of the company has risen from 10,485.77 to
12,205.25 lacs thereby registering a growth rate of 16%.
The other income of the company has increased from 2,790.86 lacs to 4,306.04 lacs. The other
income of the company includes Export Subsidy, Rent Realised, Sale of Scrap, Royalty,
Miscellaneous Receipts, Profit on sale of long term investment, Profit on sale of current
investments, Profit on sale of Fixed Assets.
If we look at the figures of the sales and other incomes we find that the figure of other incomes
is very less compared to the sales figure which indicates that the company is completely
dependent on the operational activities and does not derive much income from other sources.
Expenditure
The cost of materials has risen from 102,833.54 lacs to 122,243.11 lacs . The cost of materials
includes Raw Materials Consumed, Packing Materials Consumed, purchase of Finished Products
and Adjustment of Stocks in process and Finished Goods. The Raw Materials Consumed
contributes to almost 45 % to the cost of materials. The packaging materials also constitute a
Page 27 of 74
significant portion which shows that FMCG companies spend more on packaging than other
sector companies. There has been a good growth rate in the purchases of raw materials and
packaging materials.
The manufacturing and other expenses have risen from 6,985.57 lacs to 7,076.13 lacs. The
manufacturing and other expenses of the company as compared to the sales figure is not
significant
The next item is Payments to and Provisions for Employees. It has also gone up slightly from last
year. It includes Salaries, Wages and Bonus, Contribution to Provident and other Funds ,
Workmen and Staff Welfare, Directors’ remuneration.
The next item is the selling and administration expenses. Rent, advertising and publicity, freight
are some of the components of the it. It includes director’s fees and also freight expenses and
some research and development.
The financial expenses of the company have also risen from last year. It includes interest paid
on fixed loans, bank charges etc.
The company has charged depreciation to the tune of 2742 lacs.
Thus the total expenditure of the company is 201422 lacs, thereby giving Operating Net Profit
before Taxation at 42499 lacs. After providing for taxation the PAT figure has been obtained.
The PAT of the company has risen from 31695 lacs to 37,355 lakhs. The profit which has been
brought from last year has been added. Thereby giving a total amount available for
appropriation as 69,606 lacs.
The company paid an interim dividend @ 75% and Final dividend @ 100% and transferred 9000
lacs to general reserve. Thus the remaining is carried over to the balance sheet.
The EPS of the company is 4.32 increasing from 3.66 last year.
The company has not paid a huge amount as dividend, instead it has kept back the profits. This
is an indication that the company wants to take some expansion project in future.
Page 28 of 74
Chapter 4
FINANCIAL ANALYSIS II: ANALYSIS OF PROFITABLITY
MultiStep Profit Margin to Sales Ratios of Dabur India Ltd(common sized)
MULTISTEP PROFIT MARGIN TO SALES RATIOS OF DABUR INDIA LTD
Particulars
Year ended March 31,
2009
Year ended
March 31, 2008
Year ended
March 31, 2007
Year ended
March 31, 2006
Indian Rupees in lacs Ratio
Indian Rupees in lacs Ratio
Indian Rupees in lacs Ratio
Indian Rupees in lacs Ratio
Domestic Sales Less Returns 230,162.64 96.05 201,293.09
96.62
196,537.05
89.47
171,140.50
91.72
Exports 12,205.25 5.09 10,485.77
5.03 26,834.73
12.22 18,816.50
10.08
Gross Sales Less Returns 242,367.89 101.15 211,778.86 101.65
Supplier’s Credit Period 104.91 112.60 131.98 122.75
Supplier’s credit days has increased from 112.60 days last year to 104.91 days this year. The
collection period is less as compared to the credit period enjoyed by the company which is in
favor of the company. This means that the company has managed its debtors well and the
suppliers are having a high degree of faith in it, it also enjoys a good reputation with the
creditors.
Moreover, taking a general trend, collection period is on an increase except for the present
year whereas credit period has decreased as compared to the last year. But since there is a
larger difference between both the periods, the company will only have to take care of it in the
long-run.
Du Pont Analysis
With Reference To Return on Net Worth
Du Pont Analysis with Reference to RONW
Year 2007-2008 2008-2009
Net Profit Margin 15.20% 15.58%
Net Worth Turnover 4.61 times 3.83 times
RONW 70.10% 59.79%
The RONW has worsened from last year. The reason is because of the worsened Net Worth
Turnover. Reserves and Surplus have gone up substantially but the profit has not grown with
the same proportion. Thus the company has to focus more on improving the Resource
Efficiency than the operating margin.
With Reference To Return on Total Assets
Du Pont Analysis with Reference to ROTA
Year 2007-2008 2008-2009
Net Profit Margin 15.20% 15.58%
Total Asset Turnover 4.61 times 3.63 times
ROTA 55.28% 41.15%
The ROTA has worsened from last year. The reason is because of the worsened Total Assets
Turnover. Total Assets have gone up substantially but the profit has not grown with the same
proportion. Thus the company has to focus more on improving the Efficiency of assets than the
operating margin. They have made a major investment in assets that are yet to generate sales.
Thus in the coming years ROTA is expected to increase.
Chapter 6
FINANCIAL ANALYSIS IV: ANALYSIS OF CRUCIAL NOTES TO ACCOUNTS
Note 16 regarding Earnings Per Share under Accounting Standard 20
Earnings per Share has been computed as under 2008-2009 2007-2008Profit after Tax 37355.27 31677.21Weighted average number of shares outstandingBasic 864907642 863635509Diluted 869156259 869063210Earning per Share (face value Re. 1 per share)Basic 4.32 3.66Diluted 4.3 3.64
Disclosure of BEPS and DEPS on the face of the profit and loss account with equal
prominence for both the years is presented in accordance with para 8 of the AS-20.
BEPS is calculated by dividing the net profit for the year attributable to equity
shareholders by the weighted average number of equity shares outstanding during the
year in accordance with para 10 and 11.
DEPS is calculated after adjusting all the effects of all dilutive potential equity shares in
accordance with para 26 and 29.
Analysis of EPS Information Disclosed
In case of Dabur, as the weighted average number of shares outstanding is different for both
dilute and basic, therefore we are having different value of BEPS and DEPS even after having
the same net profit figure.
Notes 12 and 8 regarding Related Party Disclosures under Accounting Standard 18
Managerial Remuneration under section 198 of the Companies Act, 1956 paid or payable during the year, to the Directors: 31.03.2009 31.03.2008Salary 232.9 219.2Commission (as computed below) 0 27.79Contribution to Provident Fund 27.95 29.66Residential Accommodation 139.74 131.55Medical & Leave Travel Benefit 3.47 4.19Contribution to Superannuation Fund 34.95 43.41Others (Including Rs. 287.12 Previous year Rs. 297.31 under stock option Scheme) 780.14 683.07 1219.15 1138.87Computation of net profit in accordance with Section 198 and section 309 (5) of the Companies Act,1956 and calculation of Director’s commission Profit for the year before tax as per Profit & Loss Account 42499.59 36517.59Add: Managerial remuneration 1219.15 1138.87Directors fees 10.2 11.12Provision for doubt full debts 737.82 257.71Less: Capital Profit 0.95 40Adjusted net profit 44465.81 37885.29Maximum permissible remuneration 4891.23 4167.38Maximum commission payable: 444.65 378.85Actual commission (To one non whole-time Director) NIL 27.79
Analysis of Disclosures and Managerial Remuneration
The operating results and financial position of a company may be affected by a related
party relationship, such as holding, subsidiary company, associates, joint ventures etc as
related parties may enter into transactions which unrelated parties would not.
Disclosure of the names of holding companies and fellow subsidiaries in accordance
with para 3(a) and 21 of As-18
Disclosure of the names of whole-time directors in accordance with para 3(d),14 and 21
of AS-18
Disclosure of the nature of transactions separately with holding companies and with
fellow subsidiaries as per details furnished in the note in accordance with para 23.
1.3% of Total Sales to fellow subsidiaries is quite a material-related party transaction.
An equity contribution of Rs. 1,950 lacs is stuck with the subsidiaries.
In comparison to last year loan repayment of Rs. (2,272.28 lacs this year there is nil
repayment.
Guarantees & collateral given to subsidiaries is increased by 48.57% to Rs. 5,860.35 this
year.
Employee stock option scheme has increased by 35.41% to Rs. 44.24 lacs this year.
The idea is to prevent excessive withdrawal by way of remuneration to whole-time
directors, out of the profits generated by the company.
AS 18 also requires a specific disclosure of transactions with the key management
personnel which includes disclosure of the amount of managerial remuneration as well.
The users of financial statements, by reviewing this amount may reach a conclusion
regarding its reasonableness in regard to net profits earned by the company.
The total remuneration paid by Dabur as per note 8 is a figure of 1219.15 lacs against a
huge net profit figure of Rs. 42499.59 lacs after charging such remuneration. This is less
than reasonable withdrawal out of the net profits.
Mr. Pradip Burman, a whole time director, voluntarily has foregone his salary and part
of service benefits w.e.f. 1st October 2008. Amount foregone on account of salary and
service benefits work out to Rs.37.60 and Rs.7.49 respectively.
Note 22 regarding Segment Reporting under Accounting Standard 17
Based on the guiding principles given in Accounting Standard on Segment Reporting, the company’s primary business segment is Consumer Care Division(CCD). It addresses consumer needs across the entire FMCG spectrum through four distinct business portfolios of Personal Care, Health Care, Home Care & Foods.
Disclosure of types of products in the CCD segment is in conformity with para 58 of the AS.
Disclosure of segment revenue, result assets, liabilities, capital, expenditure, depreciation and other non cash charges on account of provision for pension and gratuity in conformity with para 40 of the AS.
Segment liabilities disclosed include net deferred tax liabilities despite the requirement of specific exclusion as per the definition of segment liabilities as given in para 5 of the AS.
The company’s corporate strategy aims at creating multiple drivers of growth anchored on its core competencies. The company is currently focused on following business ie Consumer Care business, Consumer Health business and food.
Segment Analysis for the year ended 31-03-09
Segments Capital Employed PAT
Rs. in lacs % of Total Rs. in lacs % of Total
1 Consumer Care Business 33,451.00 45.85 52,099.00 139.472 Consumer Health
Business6,295.00 8.63 5,593.00 14.97
3 Food 8,840.00 12.12 5,326.00 14.264 Others 3,298.00 4.52 131.00 0.355 Unallocated 21,071.00 28.88 -25,793.00 -69.05 Company as a whole 72,955.00 100.00 37,356.00 100.00
45.85% of capital employed in ‘Consumer Care Business’ segment contributing an
astronomically high 139.47% of PBT. The performance of this segment is affected
badly by ‘Unallocated’ segment, which has returned a loss on 28.88% of capital
employed therein.
As against this, a high 28.88% of capital employed in ‘Unallocated’ segment, higher
than the ‘Consumer Health Business’ segment, but it contributes a loss of 69.05% of
PBT.
8.63% of capital employed in ‘Consumer health Business’ segment is contributing a
good figure of 14.97% to PBT.
Reasons are very clear – both in terms of capital turnover efficiency as well as
profitability on capital employed – all other segments analyzed are lagging far
behind the ‘Consumer Care Business’ segment.
Chapter 7
FINANCIAL ANALYSIS V: ANALYSIS OF AUDITORS’ REPORT
Analysis of the Auditors’ Report is a Comment on how the auditors’ report acts as a catalyst
towards ensuring a better quality of financial performance and position and reporting thereof
and financial discipline. The auditors’ report is divided into 2 parts:
first part expressing the auditors’ view on true and fairness or otherwise of the state of
affairs of the company in the case of the balance sheet and profit in the case of profit
and loss account.
Second part comments on fixed assets, inventories, related party transactions, internal
audit and control system and outstanding undisputed statutory liabilities.
The examination of the issues mentioned in these 2 parts and their implications for determining
a true and fair profitability and state of affairs of the company clearly reveal that the auditors’
report acts as a catalyst towards ensuring a better quality of financial performance reporting.
Let us look at each one of them in detail:
First part:
Obtaining information and explanation necessary for audit.
Opinion on maintaining proper books of account.
Assertion about agreement of financial statements with the books of account.
Opinion on the compliance of mandatory accounting standards.
Comment on whether any director of the company is disqualified from being appointed
as such as per the norms of the Companies Act.
Assertion about agreement of balance sheet, profit and loss account and cash flow
statement with the accounting principles generally accepted in India.
Second part:
Fixed assets:
Comment on records of fixed assets.
Comment on fixed assets’ adjustments between physical verification and records
in the accounts and extent thereof.
Comment on fixed assets disposed off during the year.
Inventories:
Comment on inventories’ adjustments between physical verification and records
in the accounts and extent thereof.
Comment on the procedures used for the verification of inventories.
Comment on records of inventories.
Related party transactions
Comment on loans granted to/taken from companies, firms or other parties in
which directors are interested to determine whether they are prejudicial to the
interests of the company or not.
Comment on the internal control system commensurate with the size of the
company and nature of business.
Comment on contracts or arrangements in the register maintained under section
301 of the Act 1956.
Comment on the deposits accepted from public.
Comment on the documents and records maintained for the loans and advances
granted.
Comment on the preferential allotment of shares.
Comment on creation of securities / charges in respect of debentures issued and
outstanding.
Comments on the company’s regularity in repayment of dues to any financial
institution, bank or debenture holder.
Comments on the absence of disputed due on account of wealth tax and cess.
Comment on money raised by public issues.
Comment on the preferential allotment of shares under their ESOP Scheme.
Internal audit:
Comment on the internal control system commensurate with the size of the
company and nature of business.
Outstanding undisputed statutory liabilities
Comment on the deposits undisputed statutory dues including provident fund,
fund, investor education and protection fund, service tax etc. with appropriate
authorities.
Chapter 8
FINANCIAL ANALYSIS VI: ANALYSIS OF DIVIDENT POLICY
The company has been very non-uniform and inconsistent in paying dividends to its
stakeholders. The Dividend ranges from 50% in 2002 to 250% in 2005. From 2003 onwards
Dabur has been paying a dividend over 100% consistently. In 2009, the company paid an
interim dividend of 75% (Re. 0.75 per share) on February 10, 2009 and has recommended a
final dividend of 100% (Re. 1 per share). So the aggregate dividend for the year comes our to be
175%, an improvement over the previous financial year (150%).
FINANCIAL ANALYSIS VII: ANALYSIS OF CASH FLOW STATEMENT
Compliance with Accounting Standards
The given cash flow statement is for the year ended 31-Mar-09. AS-3 deals with the cash flow
statement. The following disclosures for the same are met by Dabur India Limited:
The cash flow statement is presented for the same period for which the balance sheet is
given. (as at 31-Mar-09)
The cash flow statement clearly classifies the cash flow from operating, investing and
financing activities.
The disclosure of cash flow from operating activity is done through indirect method.
All Accounting Policies followed by the company abide by the GAAP and thus are
permissible.
Features of Cash Flow Statement
Features of the Cash Flow Statement as presented by the Dabur India Limited are:
The cash flow statement has been prepared for the year ended 31-Mar-09 and thus it
covers the effects of all cash transactions of the previous accounting year.
Comparative Statement –Dabur India Limited has disclosed a comparative position of
each element of cash flow statement.
Vertical form of cash flow statement has been used by Dabur India Limited. This model
provides following benefits:
Disclosures for cash inflows and outflows for the different activities: operating,
investing and financing at one place.
Information is available at a glance, enabling quick review and analysis
Dabur India Limited has used indirect method for working out the cash flow from
operating activities. The statement starts with ‘Net profit before tax and extraordinary
items’ which has been adjusted for non-cash charges and interest received to arrive at
‘Operating profit before working capital changes’. This is adjusted with ‘Working capital
changes’ to obtain ‘Cash generated from operating activities’. After deducting interest
paid, tax paid and Corporate tax on dividend, ‘Net Cash from Operating Activities’ is
obtained. The ‘Net Cash from Investing Activities’ is obtained by analyzing the Sale and
Purchase of Assets and purchase and sale of investments in subsidiaries. The cash flow
from financing activities includes proceeds of share capital and premium,
repayment/proceeds of loans and liabilities, dividend to arrive at ‘Net Cash generated in
Financing Activities’. The summation of ‘Net Cash from Operating Activities’(A), ‘Net
Cash from Investing Activities’(B) and ‘Net Cash generated in Financial Activities’(C) with
the opening balance gives the closing balance of cash and cash equivalents.
At the bottom of the cash flow statement it has been mentioned that the report is
prepared as per our (the Board of Director’s) report of event date attached. The names
of Chairman, two Whole Time Directors, GM (Finance) and Company Secretary are also
written.
Activity Wise Analysis
Operating Activities
All of the cash inflows of Dabur India Limited during 2009 have been contributed by
operating activities indicating a strong cash position.
Dabur India Limited had a net cash outflow in respect of working capital which is an
indicator of inefficient management of working capital.
Net cash from operation up by 3 % indicating strong operational financial performance.
Investing Activities
Dabur India Limited has spent huge sums on purchase of fixed assets which indicate that
the company is undergoing expansion and is likely to produce higher future revenues
It also shows considerable amount of inflow form the sale of fixed assets compared to
last year indicating that the company is disposing off its worn out fixed assets.
Dabur India Limited had significant increase in outflow towards investments in its
subsidiaries (up by 34%) indicating that the company’s future prospects are expected to
grow.
For investing activities Dabur India Limited has had a net cash outflow indicating a
favorable cash position.
Financial Activities
There has been a decrease in money generated by issuance of shares as compared to last year
to the extent of 7.5%
Dabur India Limited has had substantial net outflow in respect of repayment of borrowings
indicating its strong cash position.
It has also shown huge sums of borrowings and keeping in account the strong financial position
if the company, it is not clear why the company has engaged into borrowings.
Dividend payment has increased by 95% in the year indicating a very strong desire to maintain
the goodwill of the company in the market. It also shows that the company is making huge
profits.
Quality of Cash Position
The information provided by the cash flow statements of Dabur India Limited appears to
indicate a high quality of cash position. The reasons are simple and more than clear. It has been
generating cash from operating activities and utilizing this money in expanding its business and
in paying dividends.
However, nearly 50% of the cash flow from operations is as a result of profit from sale of fixed
assets and FCCB currency fluctuation profits which is unsustainable income. Dependence on
this income can prove detrimental for the company.
Ability to Generate Positive Cash Flows from Operations in Future
Dabur India Limited has generated cash from operations in both the years. The amount, though
increased this year, is marginally higher than last year. Information provided by its profit and
loss account establishes that almost all of the cash flow form operations in the current year is
as a result of sale of finished goods. This indicates that the company has a good ability to
generate cash in the future also. Given the huge amounts of money spend on expanding the
business, its revenues are only expected to increase in future.
Chapter 10
FINANCIAL ANALYSIS VIII: ANALYSIS OF CAPITAL MARKET VALUATION
To analyze the capital market valuation of Dabur India Limited, we have considered the following ratios:
Earnings Per Share(EPS)
Price Earnings Ratio(P/E Ratio)
Market Capitalization
Earnings Per Share(EPS)
2005-06 2006-07 2007-08 2008-090
1
2
3
4
5 4.323.67
2.923.3
Earnings per Share of Dabur
In the FY 07 the PAT has gone from 18,908.37 lacs to 25,207.63 lacs. But the EPS has gone down
because there has been an issue of bonus shares by the company. The company issued bonus
shares in the ratio 1:2, thus the no of Equity shares of the co has increased from 573302784 to
862883808 in FY07. Thus the Reserves and Surplus have also gone down. The bonus issue also
resulted in the market price of a Dabur India Limited share come down during that year from
140 to 95(appx). The company wanted to boost the confidence of the investors towards the
company and indicating to the market that the company has strong fundamentals. However
even after one year in Dec 07 the share price of the company could reach 110, even when the
markets were in a bullish run. One of the reasons of the damp reaction by the market could be
Dabur Hul Colgate Godrej0
5
10
15
20
25
4.32
11.47
21.34
6.29
EPS of peers in 2009
the stagnant dividend the co. issued to the shareholders compared to its peers like HUL. The
EPS for 2009 shows that the EPS of Colgate is very high compared to Dabur and HUL. But the
PAT of Dabur is more than Colgate. One of the main reasons is that the no of issued shares of
Colgate is very less compared to Dabur.
Price Earnings Ratio (P/E Ratio)
Dabur HUL Godrej P & G Marico Ltd Colgate0
5
10
15
20
25
30
35
40
29.16
23.48
34.6
24.44
37.3234.6
PE Ratio Comparison
Series1
PE ratio of these companies is dated 25th aug,09. The PE ratio changes every day as the stock
price fluctuates. PE is a much better comparison of the value of a stock than the price. For
example P & G has a stock price of 1170 while Dabur has a stock price of 140. However since
the PE of Dabur is more than P & G it can be considered a more expensive stock. Since Dabur
has a higher PE than P&G it can be expected to grow and have higher earnings in the future.
Dabur’s PE is larger than HUL which is a bigger company by market Cap, Pat etc but the PE
indicates that comparatively investors confidence in Dabur is no less than HUL.
The industry PE is 26.70. This means Dabur is outperforming the industry PE and is a higher
valued stock than most of the other companies in the same industry.
The PE ratio of a company may also become low if it reports higher earnings. However in the
long run the PE ratio will rise as the higher earnings will increase the market sentiment, thereby
increasing the market share eventually.
Market Capitalization
Dabur Colgate godrej HUL0
10000
20000
30000
40000
50000
60000
70000
Market Cap (in Rs. Cr)
Market capitalization is an important indicator because it may happen that the share price of a
company is low compared to its peers. However it might so happen that the company has
issued a very large number of equity shares compared to the other company. Thus market
capitalization gives us an idea of the size of the company which is decided by the public trust
and investments in the company. The share price of Dabur is around 140 while the share price
of colgate is around 600. But the no of shares issued of Dabur is 8650.76 lacs and the no of
shares issued of colgate is 1360 lacs, thus we see that there is a huge difference in the no of
shares issued by both the company. Therefore market capitalization gives a more realistic idea
of comparison of the companies rather than only share price. HUL has issued around 21800 lacs
equity shares and its share price is around 280, thus it has a very high market capitalization. It
comes in large caps companies while Dabur is comparatively a smaller company.
Yield to Investors
Following is the formula used to calculate the yield to investors:
Yield to investors = Divident Per Share + Market Appreciation
Initial Investment
Yield to investors
Year 2008-2009
Divident Per Share 1.75
Market Appreciation 8.50
Yield to Investors 6.83%
Thus we see that there has been a negative yield to investors. The main reason is because of
the crash in the stock markets due to the global recession. Dabur’s share has fallen almost by
9%. . During the same period the sensex has fallen from 15626 points to 9708 points which
means it has fallen almost 38%. Therefore we can conclude that the Dabur Share has shown
strong resilience even when the markets were not performing well.
Chapter 11
ANALYSIS OF CORPORATE GOVERNANCE REPORT
Compliance with clause 49 of the Listing agreement
It Dabur India has technically complied with all the requirements mentioned in the
clause. Its adherence to the standard practices and following of the laid down rules is
welcome and desirable for a company which is 150 years old.
The company should have furnished more information about the qualifications of the
board of directors. should have given more information about the management
principles that are followed by company management apart from the code of conduct.
The key skill area needed for the directors have been mentioned which gives an idea of
the desired qualification but the company should have mentioned the qualifications as
well.
The roles and scope of the board of directors and various committees are clearly spelt
out.
Analysis of the Management Discussion and Analysis Report requirements
The company has given clear data of the related party transactions and for the last 3 years
complied with the all the disclosure norms as needed by SEBI
The Section on Management Discussion and Analysis could have been precise giving
point to point information in the same or in a separate section.
A separate heading mentioning the noncompliance of the company has been given
which shows the company’s intent to openly accept the short falls if any.
The company has adequate internal control system wherein the compliance of various
standards can be enforced effectively. This is reflected in the roles assigned to various
board committees and its risk management structure.
Analysis of the implications of the information provided
Bringing transparency in the corporate affairs particularly at the board level.
There are zero shareholders grievances in 2009 which indicates the fast resolution of
complaints by the company.
Shareholders are kept updated about company’s performance and related matters
regularly and the necessary data is available easily.
The company’s sincerity towards ethics is reflected clearly in the section where whistle
blower policy and the policy for prevention of insider trading have been mentioned. It
shows company’s low tolerance for malpractices.
The company has strived to be a responsible citizen as mentioned in the section for the
policy for environment control and reduction of pollution, and policy for occupational
health & safety.
The frequency of the AGM which in this case if 1per year, is a good indication of the
company’s overall health.
The company has given a section I the report where it specifically points out the point
tot point compliance with the requirements of the clause 49.
The company strives to boost investor confidence.
Recommendations to the management n the strategic issues
The company must enforce all the non-mandatory requirements apart from the mandatory
ones.
Chapter 12
ANALYSIS OF DIRECTORS’ REPORT
The report’s content are summarized hereunder:
Financial ResultsDividendAcquisitionsCorporate GovernanceDirectorsDirector’s Responsibility StatementChange in capital structure and listing of sharesAuditors and their reportCost auditorsConsolidated financial statementsInternal control systemFixed DepositsNature of businessSubsidiariesEmployee Stock option planConservation of Energy, Technology, Absorption, Foreign Exchange Earnings and OutgoGroup for interse transfer of sharesHealth Safety and Environmental ReviewQuality ReviewAwards & RecognitionsIndustrial RelationsAcknowledgements
Dabur has complied with all the requirements under section 217 of the companies act.
Some useful additional information, for example, ‘Health Safety and Environmental Review’
and ‘Quality Review’ has also been provided.
SWOT ANALYSIS
Strengths
Financials: Turnover increased 15.5%, PAT increased by 18%,dividend risen to 175% to 150% last year, proposed acquisition of FEM Care Pharma Limited (FEM), a FMCG Company listed on Bombay Stock Exchange, well placed, proper and adequate internal control system.Successful introduction of a host of a new product.Good communication strategies with a host of brand ambassadors.40% increase in revenue in international business.Good rate of growth of health division.20% growth rate in consumer health division.Dabur red toothpaste became a 100 cr. Brand
Weakness
Loss on newly launched retail venture NEWUOral care segment reported a growth rate of only 4.8%
Opportunities
High demand growth in FMCG sectorIncreased penetration of FMCG products in rural marketNew opportunities in overseas market
Threats
Slowdown in economyMounting cost pressureSharp currency fluctuationsSlowdown in organized retail sectorInflationary environment in the country
Chapter 13
BRIEF WRITE-UP ON THE SECTOR AND FUTURE PROSPECTS OF THE COMPANY
The Indian FMCG sector is the fourth largest sector in the economy with a total market size in
excess of US$ 13.1 billion. 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.
There is a huge growth opportunities for companies like Dabur, HUL. Indian rural markets
present huge opportunities. The rising rural and semi-urban income levels coupled with
massive advertisement of FMCG products in the electronic media will spread so much of
awakening in the rural and semi-urban folks towards fast moving consumer goods products so
much that these will enlarge their affordability for them.
However, apart from all the opportunities there are various risk involved in the sector. Dabur
must foresee all the risks and plan its operations accordingly. The rural and semi-urban demand
of FMCG products will grow larger and higher, it will put a severe pressure on the margins of
manufacturers of FMCG products because of cut-throat competition.
One of the risks faced by companies in FMCG is continued economic slowdown and worsening
of macro economic indicators which can impact the spending power of consumers and put
pressure on their incomes and consumption. A poor monsoon if it happens can impact rural
incomes and dampen rural consumption and spends. Increase of imitation/fake product can
hamper Dabur’s growth. Any unexpected change in regulatory framework which may impact
parts of the business of Dabur is also one of the risks faced by the company.
In view of the Swot analysis done we conclude that Dabur has managed its operations very
efficiently and has shown high growth rate despite of being faced an economic slow down
situation. The company’s new products have shown immense potential to do well in the market
while the Dabur’s management is also committed to pursue higher growth rates in future. The
company has maintained a Risk register which is reviewed periodically by senior management.
Thus the risks can be minimized if action is taken immediately. The companies segments like
consumer care division, health division, international division are also showing good signs of
growth. The company is also marketing its products in the rural sector which gives the company
an added advantage. However the company needs to shell out more dividends or issue bonus
shares to make the share more attractive for investors. This along with the improving Indian
consumer market also presents immense opportunities to Dabur to increase its operations and
compete wit HuL and try to bridge the gap between them.