Management Discussion and Analysis

INDUSTRY STRUCTURE AND DEVELOPMENTS

The year 2004-05 has been a year of sustained growth for the economy as well as for your Company.
The year saw a revival in the FMCG sector which emerged from a phase of sluggish demand to
report strong growth in most consumer categories.

In 2003-04, we had seen that while the Indian economy grew by a remarkable 8.5 per cent, the
FMCG sector continued to remain sluggish. In last year’s Annual Report, we had pointed out that
one good year was not sufficient to improve consumer confidence and improve the fortunes of
the FMCG sector. We felt that it needed a few consecutive high growth years to sustain economic
development and increase demand for FMCG products. With the economy growing by 6.9 per cent
in 2004-05, we have witnessed two successive years of impressive income growth — with per
capita income increasing by 7.1 per cent in 2003-04 and by 5.2 per cent in 2004-05. This growth in
incomes has contributed substantially to a sharp turnaround in the FMCG sector (see Chart A).

opportunities offered by an improved market environment.

Through a structured implementation of strategic initiatives

Source: ORG MARG, based on sales value
over the last couple of years, Dabur had geared itself for
the challenges thrown up during the year. The Company
had already positioned itself on the herbal specialist
platform to create a niche within the FMCG space. Even
before 2004-05, a robust brand architecture with five
umbrella brands was put in place with a well-calibrated mix
of products under each brand. On the distribution side,
the process of streamlining of the sales organisation had
begun a couple of years ago. This was further consolidated
during 2004-05, which helped the Company penetrate much
deeper into semi-urban and rural markets and tap into the
demand growth in these areas.

On the costs side, there has been a growing concern of

escalating input cost — especially of oils, packaging
It is important to realise that this year’s revival in the FMCG
materials and transportation. Chart B shows that WPI-based
sector has been largely volume driven, with improved off-
inflation increased from 4.8 per cent at the beginning of
take in urban as well as rural areas. The volume growth
2004-05 to levels above 8 per cent during September 2004,
has also been accompanied by a degree of price
and remained above 5 per cent for most of the year.
stabilisation, especially after a couple of years of fierce price
Competitive pressures prevented all FMCG companies from
competition in some FMCG segments. Companies have had
passing on these cost increases to customers. Therefore,
to reposition brands, create niches for their products and
for the industry as a whole, margins were under some
improve distribution systems to make the best out of the
pressure.

Annual Report 2004-05 9


Chart B: Inflation (WPI)
To mitigate the cost push effects, Dabur has developed an
optimal mix of manufacturing facilities at different locations
to reap maximum benefits from fiscal concessions and
economies of scale. In addition, further efficiencies in the
supply chain right from procurement to production helped
to cap input costs. These operational factors coupled with
good sales growth helped the Company generate
impressive profits and return to investors. The highlights
of Dabur India Limited’s performance in 2004-05 are:
• Revenue from operations increased by 10.5 per cent
from Rs.1147.9 crore for 2003-04 to Rs.1268.7 crore in
2004-05
• Operating profit (EBIDTA) increased by 36 per cent from
Rs.138.2 crore in 2003-04 to Rs.187.9 crore in 2004-05
• Interest outgo decreased by 38 per cent from Rs.6.9
crore in 2003-04 to Rs. 4.3 crore in 2004-05.
• Profit after tax (PAT) increased by 46.3 per cent from
Rs.101.2 crore in 2003-04 to Rs.148 crore in 2004-05.
• Return on capital employed (ROCE) increased from 34.9
per cent in 2003-04 to 38.7 per cent in 2004-05
• Return on net worth (RONW) increased from 38.6 per
cent in 2003-04 to 44.5 per cent in 2004-05
To enhance the perception of Dabur as a contemporary
organisation — one that is in tune with customer needs—
10 Dabur India Limited • Management Discussion & Analysis
the Company launched the new identity of its flagship brand
“Dabur” during 2004-05. While leveraging Dabur’s 100 year
old brand equity by retaining the essence of the banyan
tree, the new brand identity projects a more modern image
in consonance with today’s lifestyle.
The new visual identity expresses a brand that is dynamic,
proactive and progressive. These characteristics are not
limited to perception building exercises but are integral to
Dabur’s pursuit of profitable growth.
The Company’s growth in 2004-05 was fuelled by launching
new products, entering new categories, spreading its
geographical reach and growing its relatively smaller
product portfolios like foods. While the parent company
Dabur India Limited (DIL), continues to be the driving entity
operating in the herbal specialist space in India, the food
business is undertaken by DIL’s subsidiary company Dabur
Foods Limited (DFL). The international business is carried
out by the Dubai based subsidiary, Dabur International
Limited. Going forward, it is important to look at Dabur’s
business on a consolidated basis, as the future business
plans will involve Dabur India Limited and all its subsidiaries,
working as a cohesive unit. The highlights of the Company’s
consolidated financial performance are:
• Consolidated Net Sales from operations increased by
15.6 per cent from Rs.1329.6 crore in 2003-04 to
Rs.1536.9 crore in 2004-05
• Consolidated Profits after tax (PAT), after accounting
for minority interests, increased by 46.3 per cent from
Rs.106.5 crore in 2003-04 to Rs.155.8 crore in 2004-05
We have always maintained that while organic growth is
the focus area, we would be always open to value
enhancing inorganic growth opportunities. The Company
had accumulated significant cash reserves over a period
of time which needed to be invested judiciously; Dabur
was, therefore, on the lookout for good acquisition
opportunities.
In 2004-05, the Company found a good value proposition
and undertook its largest acquisition till date, by acquiring
Balsara’s hygiene and home products business in an all-cash
deal. The Board of Directors of Dabur India Limited approved
of this deal in its Board meeting held on 27 January, 2005,
and the acquisition of shares took place on 1 April, 2005,
after obtaining shareholders’ approval.
As part of the deal, Dabur has acquired the entire promoters’
stake in three Balsara companies: 99.4 per cent in Balsara
Hygiene Products; 100 per cent in Balsara Home Products;
and 97.9 per cent of the shareholding in Besta Cosmetics
Limited. The cost of all three taken together has been Rs.140
crore.
The acquisition was largely funded through internal accruals
- out of the Rs.140 crore investment, only Rs.20 crore was
funded through debt.
The Balsara acquisition would add sales turnover of
approximately Rs.200 crore to Dabur and brings with it three
manufacturing facilities located at Silvassa, Kanpur and
Baddi. It operates in three business segments, with unique
positioning in each:
• Oral Care
Care: With its clove oil based Promise toothpaste,
Balsara was a pioneer in herbal oral care products in
India. Balsara also has a strong presence in the value
segment with Babool toothpaste and in the premium
segment with Meswak toothpaste.
Taken together, the Balsara oral care brands hold
around 4.5 per cent share of the toothpaste market.
• Household Care: In this segment, too, Balsara has
entrenched brands. Odonil is almost a generic name
in the air freshener segment; Odomos has a dominant
share in the personal application based insect
repellents market; Sanifresh is the second highest
selling toilet cleaner in India; Odopic, which is a
dishwashing and surface cleaner has strong brand
equity in western India. The category market size is
estimated to be Rs.2,000 crore, and has extremely
attractive growth opportunities given its current low
market penetration levels.
• Contract Manufacturing
Manufacturing: This includes the private label
and herbal extracts and complexes business catering
mainly to the international market.
There were several reasons for Dabur to believe in the value
proposition that Balsara business offers. First, its oral care
business fits well with Dabur’s herbal positioning and will
allow the Company to offer a range of strong products
across different price points in this segment. Second, the
household care products will allow Dabur to expand into a
new product category that has very low penetration levels
and high growth potential.
Third, the combined entity can reap greater benefits from
economies of scale and scope in terms of advertisement
expenses, synergies in marketing, sales and distribution
and greater utilisation of backend services. Fourth, in terms
of geographies, Balsara’s strength in the West and the South
complements Dabur’s strength in the North and East India.
Given these factors, Balsara has a strong strategic fit with
Dabur, and we believe that the acquisition will generate
positive gains for the Balsara business as well as the
consolidated entity and will prove to be a value enhancing
initiative.
In the following sections we look at the developments in
Dabur’s different businesses in India and abroad.
SEGMENT-WISE AND PRODUCT-WISE
PERFORMANCE
Domestic FMCG Business
In India, the Company’s business is carried out by three
divisions — Consumer Care Division (CCD), Consumer
Healthcare Division (CHD) and the wholly owned subsidiary
Dabur Foods Limited. On a consolidated basis CCD
contributes 82 per cent, CHD contributes 8 per cent and
DFL contributes 10 per cent to the Company’s domestic
revenues. While CCD remains the leading division and a
focus area, during 2004-05 the Company undertook several
initiatives to consciously grow the smaller divisions — CHD
and Foods. These divisions, with relatively smaller sales
bases, are seen as key drivers of future growth.
Annual Report 2004-05 11
Consumer Care Division
The FMCG business of the Company is housed in this division
and offers a wide range of products in hair care, oral care,
health supplements, digestives and candies, and baby and
skin care. Chart C gives the relative contribution of these
categories to total sales of the Consumer Care Division.
Chart C : Category Contributions
CCD’s net sales increased by 8.9 per cent from Rs.1,001.2
crore in 2003-04 to Rs.1089.9 crore in 2004-05. A number of
new products in various categories have been launched in
the last couple of years. Many of these products had the
first full year of marketing during 2004-05 and were the
prime drivers of growth. Sales of new products accounted
for over Rs.75 crore in 2004-05, which was around 8 per
cent of the total sales of the division.
The CCD brands continued to get support from aggressive
advertisement campaigns. While celebrity film stars like
Amitabh Bachchan and Rani Mukherji continue to endorse
Dabur’s brands, the company signed on cricketer Virendra
Sehwag to be an ambassador for select brands. During 2004-
05, the company rolled out a focused plan to develop its
south Indian markets, where it had been comparatively
weak. A core group under a new marketing head has been
set up to push this initiative. The Company is supporting
12 Dabur India Limited • Management Discussion & Analysis
this exercise by developing new products and packaging
which are customised to the distinct tastes and needs of
the South Indian consumer. The ‘South India’ initiative has
begun to pay dividends as sales in the region grew by 23.6
per cent during 2004-05, and its contribution to CCD sales
increased from 7.1 per cent in 2003-04 to 8.2 per cent in
2004-05.
Hair Care
Hair Care, which is the largest category in Dabur’s CCD
portfolio with a 38 per cent share, registered a growth of
11 per cent during 2004-05. From a market perspective,
the two groups of products in this category — hair oil and
shampoos — witnessed diametrically opposite market
movements. While in hair oils the market grew faster in
value terms compared to volumes, in shampoos, the value
growth was far less than that of volume. This development
in shampoos was a direct fall-out of fierce price based
competition in the first half of 2004-05. In the latter half,
there has been an element of price stabilisation with all
FMCG companies repositioning their products in new price
segments and consolidating their presence.
In hair oils, Dabur Amla hair oil grew by 15.9 per cent during
2004-05 in value terms, and net sales crossed Rs.200 crore.
During the year, the brand communication for this product
was transformed from being a purely functional one, to a
more evolved and trendy message. Vatika hair oil registered
double digit growth, with sales value increasing by 13.1
per cent in 2004-05. The product increased its market share
in the hair oil category from 6.9 per cent in 2003-04 to 7.6
per cent in 2004-05. Dabur continued to promote this brand
with its concept of “Vatika Women”. The Superbrand Council
of India acknowledged the strength of the Vatika
brand and it was adjudged as one of the 101 super brands
in India.
There has been a concerted effort to develop the Anmol
brand on the economy platform across product categories.
Under this, your Company had made an entry into the large
mustard oil market with its branded hair oil offering
Anmol Sarson Amla Hair oil. In its first full year in the market
during 2004-05, the product has shown good growth
prospects.
In line with the price rationalization that happened in the
shampoo category, the Company repositioned some of its
offerings and reduced prices in products such as Vatika
Henna Cream Shampoo. As a result, while Dabur’s
shampoos registered a 14 per cent growth in volume terms,
its value growth was restricted to 0.4 per cent in 2004-05.
The newly launched Dabur Anmol shampoo range enabled
the Company to gain entry into the economy segment of
the shampoo market.
Health Supplements
This category recorded a growth of 2.4 per cent for 2004-05.
Growth was impacted in the second half of the year largely
due to the country experiencing a delayed and shortened
winter thus adversely affecting off-take of the flagship
product in this category – Chyawanprash, which experienced
marginal decline in sales. The Chyawanprash market as a
whole declined by 5.7 per cent during 2004-05. The
Company is in the process of rolling out strategies to expand
the usage of Chyawanprash.
The brand “Dabur Chyawanprash” bagged the “Brand Re-
launch of the Year” award at the first Indian Marketing
Awards (IMA) held in October 2004.
The growth driver in this category was Dabur Honey, which
grew by 24.6 per cent in value terms. This brand has been
seeing strong growth due to focused marketing and
advertising support and increasing usage of honey in food
preparations. Sales of Dabur glucose remained stagnant
during 2004-05. An aggressive consumer promotion has
been initiated for this brand supplemented by a new
advertisement campaign.
In order to drive growth in Health Supplements category,
your Company has planned to introduce a unique and
differentiated product in Herbal Nutritional Supplements
category. This product is being test marketed in some select
markets. The Nutritional Supplements category is a large
consumer category in which Dabur’s healthcare and herbal
equity fits very well and it offers significant growth potential.
Oral Care
Sales of Dabur’s Oral Care products increased by 10.1 per
cent. This growth has been driven by wide acceptance of
the Dabur Red Toothpaste franchise, which was in the
second year of its launch. Sales of Dabur Red Toothpaste
increased by over 100 per cent and reached Rs.49.7 crore
in 2004-05.
In toothpowders, where Dabur has been a dominant
player, sales were under stress due to a 7.0 per cent
decline in the entire category. During the second half of
the year, Dabur aggressively pushed this product with a
new advertisement campaign featuring Virendra Sehwag.
This helped the company strengthen its position within
the category and increase its market share from 30.1 per
cent in 2003-04 to 31.7 per cent in 2004-05. However in
the near term, it is the toothpastes that are poised for
good growth.
With the Balsara acquisition, Dabur has strengthened its
position in toothpastes, and now has a robust set of
offerings across different price points. While Babool will
be positioned in the economy segment, Dabur Red
toothpaste will be positioned in the mid-priced segment
and Meswak in the premium segment. Another Balsara
product Promise toothpaste, which is in the same price
band as Dabur Red Toothpaste, will be positioned under
the white toothpaste platform, and its international brand
equity will be leveraged for exports.
Digestives and Confectionery
During 2004-05, this category recorded a growth of 2 per
cent. While Hajmola tablets registered a 9.1 per cent growth
in 2004-05 with the roll out of a new packaging and
advertisement campaign, sales of Hajmola candy decreased
by 3.3 per cent in 2004-05. The Company has taken steps to
revive the sales of Hajmola candies, which includes re-launch
of the product in a smooth format with a more contemporary
packaging. The re-launch was done in West Bengal and
Maharashtra, and will be extended nationally in the first half
of 2005-06.
Annual Report 2004-05 13
The focus on newer formats of Hajmola continued with
launch of an improved ‘goli’ format of Hajmola Anardana. A
further extension of the Hajmola brand has been planned
with the launch of Hajmola Yumstick, which is a paste in a
stick format and comes in two ethnic flavours — imli
(tamarind) and aam (mango). Sales of Pudin Hara liquid
recorded good growth but due to decline in the Pudin Hara
pearls, the overall brand remained stagnant.
Skin Care/Baby Oils
This is the smallest category in CCD’s portfolio in terms of
size of sales, but in terms of growth this has been one of
the leaders, with sales increasing by 13.1 per cent during
2004-05. Most of this growth was fuelled by expansions in
skin care products.
Within skin care, Gulabari grew by 21.7 per cent in 2004-05.
The fairness platform has also paid rich dividends as seen
in the 50 per cent growth in Vatika Fairness Face Pack. The
Company has made further inroads into skin care area
through test marketing of Dabur Anmol Cold Cream and a
test launch in West Bengal of Vatika soap with saffron and
honey. Herbal soaps is another area where the equity of
Vatika brand can travel seamlessly to command a niche
position, therefore the Company has decided to make a
calibrated entry into this category.
In baby care, Dabur Lal Tail registered a growth of 9.5 per
cent in 2004-05. The high quality of this product was further
endorsed by the fact that it was the only baby oil that passed
FDA scrutiny in the test which was conducted on all leading
brands of baby oils in Maharashtra.
Consumer Healthcare Business
Consumer Health Division
The Consumer Healthcare Division (CHD) portfolio comprises
of pure grantha based products on the Ayurveda platform,
which can be broadly classified into OTC products, branded
ethical and generics including Asavs and Classicals. This
business includes popular products such as the OTC Asav
14 Dabur India Limited • Management Discussion & Analysis
tonic brands of Dashmularishta and Ashokarishta and
advertised brands such as Dabur Shilajit, Naturecare,
Shankhpushpi, Honitus and Ring Ring among others. During
2004-05, this division’s sales increased by 12.4 per cent
from Rs. 95.9 crore to Rs.107.8 crore, thus breaking the
Rs.100 crore barrier for the first time. This growth has been
fuelled by strong performance of brands like Shilajit,
Shankhapushp Syrup, Nature Care and Ring Ring. This
business is woven around the Ayurveda segment and
therefore, given the strong Ayurvedic origins of Dabur’s
equity, constitutes a major focus area for the Company.
The Consumer Healthcare activity has been identified as
one of the growth drivers of your Company’s business going
forward. The increasing preference for holistic health
remedies as offered in Ayurveda is leading to a sustained
growth in the Natural/Herbal segments. Your company
plans to lead this growth.
In order to develop this division in a focused manner, the
Company undertook a major organisational restructuring.
This included the appointment of senior professionals with
wide experience in the FMCG and Healthcare industry.
Concurrent with these structural changes, the division has
formulated and will implement a synergised business
roadmap during 2005-06.
This strategy stresses on taking quantum jumps in growth
and is centred around two distinct groups of products that
are at two different ends of the divisions product portfolio
— the classical grantha based business and the OTC route.
On the branded ethical side, the strategy focuses on
marketing Grantha based products, which are safety and
efficacy driven. Your Company undertakes extensive clinical
trials for most of its products so that the products are tried
and tested before actual use. Your company has a strong
research and development infrastructure comprising about
20 dedicated scientists who are working on developing
and strengthening the Ayurvedic platform scientifically.
Apart from this, the Company is associated with the Dabur
Dhanwantary Foundation in Chandigarh and several other
regional hospitals for promoting education and R & D in the
field of Ayurveda.
Building a world class OTC capability is central to the
development of this division. The aggressive OTC strategy
is based on connecting customers with Ayurveda using
various elements of the media, doctors and pharmacy
promotions. The idea is to strengthen relationships with
Ayurveda market stakeholders — in other words, not just
penetrate the market but also redefine and grow it. This
initiative is being supported by aggressive advertising of
several products like Honitus and Nature Care.
In 2004-05, Dabur Dashmularishta became the first branded
ethical Asav (tonic) to be advertised on television. Marketing
activities continue to focus on increasing endorsement from
healthcare professional (BAMS and Vaids who prescribe
Ayurvedic medicines), developing pharmacy selling,
increasing the effective coverage in urban pharmacy
supported by focused media thrust. On the distribution side,
territories have been restructured and additional manpower
deployed wherever necessary. To build effective coverage,
your Company has strengthened the number of retail sales
force personnel and also stockist networks.
In 2004-05 CHD acquired the brand Honitus from de-merged
Dabur Pharmaceuticals Limited. This cough syrup, which has
an Ayurvedic base, was earlier sold through the prescription
route. Now this is being sold over the counter (OTC). Dabur’s
Consumer Healthcare business continues to be open to
further opportunities for acquisitions and partnerships in
India and abroad and is strategically poised for good growth.
Foods Business
Dabur Foods Limited
Dabur India Limited’s wholly owned subsidiary, Dabur Foods
Limited (DFL) operates on the naturals platform with a
product portfolio consisting mainly of fruit juices, cooking
pastes, sauces and items for institutional food purchases.
The business’ sales grew by 51.2 per cent from Rs.85.8 crore
in 2003-04 to Rs.129.7 crore in 2004-05.
The primary growth driver in this business were its two fruit
juice brands –“Real” and “Real Activ” which, taken together,
recorded an impressive growth of 38.5 per cent. During the
year the Company repositioned its offerings to put in place
a well segmented product strategy. The Company, now has
three distinct brands across the fruit juice category : Real,
Real Activ and Coolers.
The Activ range of juices, which have no added sugar, cater
to the health conscious young adults in the premium segment.
Activ’s new identity, which has now become distinct from the
Real brand, has been brought out in its new contemporary
and trendy packaging. The Activ range now has five flavours
including the two new additions – Mixed Fruit Cucumber
Spinach Juice and Mixed Fruit Beetroot Carrot Juice. In order
to target the 18 to 35 age group the smaller packs of Activ
have been enlarged from 200 ML to 330 ML, which is a more
appropriate quantity for a person of this age group to derive
nutritional value from a single drink.
Real continues to be DFL’s offering for the medium segment
with growth thrust provided by continuously launching new
flavours.
The economy end of the portfolio consists of “Coolers”.
These drinks are based on traditional Indian formulations,
which have a cooling effect on the body. They were launched
in 2004-05 in 3 flavours — Watermelon, Pomegranate and
Aam Panna. The Company intends to aggressively promote
this brand and also introduce new flavours in 2005-06.
The Hommade brand grew by 31 per cent in 2004-05 with
good growth in Coconut Milk and Tomato Puree. Apart from
these, the brand also offers a range of cooking pastes, and
has recently test marketed a soup concentrate, which shall
be launched nationally during 2005-06.
Institutional sales contribute around 25 per cent of Dabur
Foods’ turnover. The company intends to bring in more
products in this distribution system. A separate brand called
Nature’s Best has been created for institutional sales and it
consists of products like ketchup and corn powder. There
was impressive growth in sales of honey to institutions,
which is done in special one kg packs.
Annual Report 2004-05 15
International Business care products. Dabur International’s subsidiary in
Bangladesh—Asian Consumer Care Private Limited –
During 2003-04, the Company started giving greater impetus
recorded sales of Rs.10 crore in 2004-05, its first full year of
to the international business. The entire international
operations. Operations in the Nigerian plant began during
operations was reorganised and an umbrella organisation
2004-05 and will be scaled up in the next financial year.
called Dabur International Limited was created to provide
focus and structure to the international initiatives. This entity There was also renewed growth in the Russian and CIS
has an independent team and operates out of Dubai. markets. Sales in Pakistan registered a 100% growth.
Overseas sales grew by 43.4% per cent from Rs.128 crore Dabur has formulated structured strategies for its foray into
in 2003-04 to Rs.183.6 crore in 2004-05. The overseas the international market. Based on market assessment, the
impetus has been maintained and the share of overseas in Company has identified 20 focus countries where it is
Dabur’ total sales increased from 9.6 per cent in 2003-04 to evaluating the need for having a manufacturing facility or
11.9 per cent in 2004-05. The data of relative domestic and marketing presence. One of these countries is Pakistan.
overseas sales and net profit for the consolidated entity is Given similar taste patterns as India, this is a good market
given in Table 1. for Dabur, but the need to establish a presence there as a

Domestic Overseas local venture is being carefully evaluated. There are another

2004-05 2003-04 2004-05 2003-04 set of countries, which are termed as opportunity markets,
where Dabur will forge alliances based on opportunies.
Sales 1353.4 1201.5 183.6 128.0
% of total 88.1 90.4 11.9 9.6 In its first concerted endeavour to extend Dabur’s products
to the mainstream international markets in developed
Net Profit 151.7 100.6 5.3 8.7
countries, your Company is exploring opportunities to enter
% of total 96.6 92.0 3.4 8.0 into a marketing alliance with some of the well established
retail chains in the UK. There is a large market for herbal based
Table 1: Relative share of sales and profits of domestic therapeutic products amongst the mainstream population in
and overseas businesses developed markets, dealing primarily with lifestyle ailments.
The Company continues to leverage the herbal specialist The focus of this initiative would be to cater to this market in
platform in the overseas markets and offers products in UK through OTC products. For this purpose, Dabur needs to
different geographies based on local tastes and demands. have the selected products and production processes certified
During 2004-05, the Company also made investments in with the Medicines and Healthcare Products Regulatory
global brand building which have brought down the net Agency (MHRA)—the executive approving agency of the UK
profit as compared to last year. However the profitability government. The Company has already initiated this process.
of the business is expected to improve with increasing Entry strategies are also being developed to enter the USA
volumes and better utilization of the infrastructure which
supplements market.
has been put in place.
Dabur’s shareholding in Dabur Nepal has been increased
Dabur’s products are gaining ground in the Middle-East,
from 80 per cent to 97.5 per cent by acquiring additional
which witnessed around 24.4 per cent growth in net sales
17.5 per cent shareholding from the minority partners based
during 2004-05 on the back of a major brand building
in Nepal. The shares were acquired by Dabur International
exercise. In Egypt, the turnover almost doubled in 2004-05
with a view to reduce minority shareholding and retain
with significant growth in the Company’s oral care and hair
maximum profits under the consolidated Dabur umbrella.

16 Dabur India Limited • Management Discussion & Analysis

OPERATIONS
Manufacturing
India
In 2004-05, Dabur successfully commissioned its largest and
state-of-the-art manufacturing facility at Rudrapur, Uttaranchal.
Set up in a record time of four months, the plant is now fully
operational and is being used to manufacture Chyawanprash,
Hajmola tablets, Amla hair oil, Vatika hair oil, Lal Tail and Janam
Ghunti. While the Rudrapur facility enjoys similar fiscal benefits
as the Jammu and Baddi plants, the Company remains focused
on leveraging higher operational efficiencies and superior
quality levels from this plant.
As part of our long-standing commitment to environmental
safety and protection, an ultra-modern effluent treatment
plan and an elaborate environmental management system
has been commissioned in Rudrapur. Your Company
believes that with its superior technology, modern
manufacturing processes and exacting quality control
procedures this plant will go a long way in further
strengthening Dabur’s market position.
Dabur’s plant in Jammu, commissioned in November 2003,
is also fully operational and is being utilized for
manufacturing hair oils, shampoos, Gulabari, Kewra water
and intermediaries. This plant features a modern and
compact shop floor design, lean organization structure,
improved system processes and stringent quality control
norms. Higher batch sizes and larger scales of production
at this facility have contributed to major improvements in
product quality, consistency and productivity.
During 2004-05, Dabur added a toothpaste and Nutritional
Supplements manufacturing capacity at its Baddi plant. The
Company has also set-up a fully operational effluent
treatment plant at this facility.The total capital expenditure
incurred by the Company on these facilities and other
requirements amounted to Rs.56.1 Crore. This has enabled
the Company to enhance manufacturing capacity
significantly besides upgrading technology.
As a result of the Balsara acquisition, Dabur has added three
more manufacturing facilities to its fold, located at Silvassa,
Baddi and Kanpur. While the Silvassa and Kanpur facilities
are primarily engaged in manufacturing household range
of products and the private label business, the Baddi plant
produces oral care products, including fluoride based
toothpaste. This plant was set up in 2004-05 and enjoys tax
benefits as are available to new units in Himachal Pradesh.
Dabur Foods’ multi-fruit processing facility at Siliguri, West
Bengal, became fully operational during the year. The plant
produces pulp and concentrates and has brought the
Company a step closer to achieving full backward integration
and realising the resultant cost efficiencies.
The location of this plant is a major source of its competitive
strength. It is located at the heart of a major fruit-producing
and trading area, thus, giving it access to a variety of fruits
including litchi, guava, mango and tomato at competitive
prices. Moreover, it is in close proximity to the Dabur Foods’
juice plant located in Nepal, thereby reducing time and cost
of transportation. The plant meets the stringent
requirements of the Codex Alimentarius Commission
Guidelines, the Recommended International Code of
Practices and the General Principles of Food Hygiene.
In 2004-05, Dabur Foods acquired a new facility near Jaipur
for manufacturing fruit juices. The plant currently has
manufacturing facilities for 200 ml packs. This plant will be
upgraded to manufacture 1 litre and 200 ml packs of ‘Real’
brand of fruit juice and the ‘Coolers’ range of products.
Operations at the Nepal plant have been meeting all
requirements and have not been impacted by domestic
disturbances.
Overseas
Dabur International has manufacturing facilities at Dubai,
Sharjah and in three of its step-down subsidiaries — Asian
Consumer Care Private Limited in Bangladesh, Dabur Egypt
Limited in Egypt and African Consumer Care Limited in
Nigeria. During the course of the year, the plant at Nigeria
Annual Report 2004-05 17
became operational. Production at the Bangladesh plant had
begun in 2003-04. This was stabilised, and 2004-05 was the
first full year of operations here.
Quality
Dabur remains resolute in its commitment to enhance quality
levels across its product portfolio. In this regard, over the last
few years, the Company has maintained a sharp focus on
upgrading technology and improving manufacturing
processes at all its plants. As part of its quality assurance
programme, it undertakes regular factory quality audits by
trained quality auditors, ensures compliance with ISO 9000
procedure and implementation of established standard
operating procedures across its manufacturing bases.
Through significant technological up-gradation, the
manufacturing process of Hajmola Anardana Goli has been
made free from human touch, thus, bringing in
improvement in hygiene. The production process of
Hajomla candy has also been upgraded to convert the
product into depositor form, thus giving it a smoother finish.
The Honitus and Nature Care product lines at the Baddi
plant have been set-up to meet appropriate standards of
safety, quality, performance and effectiveness as set by
Medicines and Healthcare Products Regulatory Agency
(MHRA) — the executive agency of the Department of
Health, Government of UK. Apart from this, the plants
manufacturing Chyawanprash, Glucose and Honey have
received Hazard Analysis and Critical Control Point
(HACCP) certifications.
Supply Chain
In the current inflationary backdrop, supply chain
efficiencies have assumed even greater importance. Our
initiatives over the last couple of years in supply chain
management have stood us in good stead and during
2004-05, Dabur continued to realize procurement
efficiencies and reduce its input costs in spite of inflationary
pressures. In fact, Dabur is one of the few companies in
the FMCG industry which has reduced its input costs
18 Dabur India Limited • Management Discussion & Analysis
consistently over the last few years by focusing on high
degree of skills in the area of procurement and materials
management. Through usage of innovative procurement
strategies and modern forecasting and research tools, the
Company’s material cost as percentage of sales came down
from 43.7 percent in 2003-04 to 42.9 per cent in 2004-05.
During the year the Company successfully deployed the
‘Spend Visibility’ programme in collaboration with ‘Ariba’
(earlier FreeMarkets) to further strengthen its procurement
efficiencies. This program has significantly enhanced the
quality of information and visibility in sourcing priorities of
the Company.
The Company is also intent upon creating a backward-
integration platform for herbal inputs, especially those on
the endangered list. To this end, Dabur has made a foray
into contract farming for selected herbs as part of the Agro-
biotechnology initiative. Under this initiative, a number of
backward integration programmes have been set up in
Andhra Pradesh, Tamil Nadu, Haryana, Uttar Pradesh,
Himachal Pradesh, Uttaranchal , Jammu and Kashmir and
Nepal to develop sustainable cultivation of these
engendered species through contract farming and buy back
arrangements. Dabur enters into contract farming
agreements with farmers through a local coordinator. The
Company also organizes quality-planting material with
promising genetic potential to farmers on no-profit-no-loss
basis and provides additional technical support. In all about
2500 acres of land and 29 medicinal herbs have been
covered under this programme, which contributes to
environment and adds to the income of farmers in addition
to providing a sustainable source of herbal inputs to
the Company.
Research and Development
R&D has been the cornerstone of Dabur’s success. The
Research and development activities are undertaken by
Dabur Research Foundation (DRF). DRF is engaged in a wide
spectrum of research on Ayurvedic and herbal products,
organic substances, Phytochemicals (plant derived
medicines), tissue culture, foods, cosmetics, oral care and
other personal care products. In 2004-05, the research
capabilities of DRF were further braced up with the setting-
up of new world-class laboratories and induction of well-
known scientists in the field.
The depth and knowledge of DRF’s research capabilities is
particularly reflected in its success in the area of new
product development. In the year under review, your
Company introduced Dabur Red Toothpaste Gel, Anmol Cold
Cream – a moisturiser with saffron and almonds, Anmol
range of herbal shampoos, Vatika Honey and Saffron soap,
the Coolers range and new fruit and vegetable flavours in
the Real Activ range of juices. The Company has also
developed a differentiated product in the herbal nutritional
supplements category which is being launched-all on
innovation-backed platforms. Given their unique properties,
Dabur believes that these products will create a niche for
themselves in their respective markets.
Improving speed-to-market on newly researched products
has been a key focus area of research at DRF. In the past,
commercial production of many researched products was
hampered due to limited focus on devising innovative
production processes. However, with this focus,
improvements have been made in transferring new
products out of the laboratory to commercial production in
a much shorter span of time. In the last few years, Dabur
has given a major thrust to clinical trials and generating
claims support data. To this end, Dabur had entered into a
strong partnership with the Dhanwantri Ayurvedic Hospital—
now called Dabur Dhanwantri Hospital — in Chandigarh.
This initiative gained further momentum during the period
under review. The Company is working proactively to upgrade
OPD and operation theatre in the hospital as well as to improve
facilities at the training institute. Dabur is also in active
collaboration with Wardha College, Poddar Institute, All India
Institute of Medical Sciences (AIIMS) and Benaras Hindu
University to conduct clinical research and claim support tests.
Till date, the Company has conducted more than 115 clinical
trials with 40 medical institutes across the country.
Going forward, your Company also expects to leverage the
perfumery, flavours and home care product capabilities of
the Balsara R&D centre based in Thane, Mumbai.
Human Resources
Dabur takes great pride in the commitment, competence
and vigour shown by its workforce in all realms of business.
The Company continues to take new initiatives to further
align its HR policies to meet the growing needs of its
business.
To this end, Dabur has introduced a uniform and structured
induction process across all its locations in India. Using
the intranet, post-induction programs have been made
available at all recruitment locations of the Company.
Dabur has also been pursing the Young Manager
Development Program (YMDP) to attract and nurture fresh
talent in the Company. Under this programme, in 2004-05,
the Company recruited 18 candidates from leading
management schools in India.
Under YMDP, each candidate is mentored by a member of
the senior management and is put through a one year cross-
functional training programme. The Company has adopted
the Balanced Scorecard for performance evaluation and
strategy deployment. All four aspects of the scorecard —
financial perspective, customer perspective, internal
business process and innovation and learning — have been
formally communicated across the management and
individual Key Performance Indicators (KPIs) identified
thereon. Annual appraisals, down to the level of area sales
managers, are based on the parameters identified as KPIs.
This has ensured that balance across multiple dimensions
of performance is maintained and that good
accomplishment in one area is not offset by poor execution
elsewhere.
Dabur has also set-up Assessment and Development
Centres to provide employees equitable growth
opportunities and a platform to realise their potential. These
Annual Report 2004-05 19
centres employ scientific processes to assess the growth Table 2 : Abridged Profit & Loss Account (Rs. crore)
potential of each individual. Based on this assessment,
Dabur India Dabur India Growth
employees are placed where their potential is best utilised. 2004-05 2003-04 (%)
For senior management, this programme is conducted by a
1 Net Sales 1,268.7 1,148.0 10.5
reputed professional organisation.
2 Other Income 11.5 11.0 4.1
People development continues to be a key focus area at
3 Total Revenue 1,280.2 1,159.0 10.5
Dabur. The Company organises regular Management
4 Total Expenditure 1,092.3 1,020.8 7.0
Development Programmes (MDPs) in the form of
workshops and training sessions for both the senior and 5 EBIDTA 187.9 138.2 36.0
junior management. A training module has been prepared 6 Depreciation 17.1 15.8 8.6
for the Company’s frontline salesmen, including those on 7 Amortisation 1.5 2.1 -29.0
the rolls of its stockists. Based on this module, the Company
8 Interest 4.3 6.9 -37.7
plans to hold day-long workshops at various locations for
9 PBIT 169.3 120.3 40.7
over 2,000 frontline salesmen and is currently engaged in
‘training the trainers’ programme for this purpose. 10 PBT 165.0 113.4 45.5
11 Current tax 13.0 8.8 48.6
Recruitment costs have been brought down through the
introduction of a structured employee referral programme 12 Deferred tax 4.0 3.5 14.6
and creation of centralised employment database with 13 PAT 148.0 101.2 46.3
access control capabilities. 14 EPS 5.2 3.5

As Dabur builds on the synergies with Balsara, it will have 15 EPS (Diluted) 5.1 3.5

to deal with the challenges of integrating the two
As can be seen in Table 2, Dabur India continues to pursue
workforces. The Company is well-placed to manage this
its path of high profitable growth. With the renewed
integration process. While the immediate integration focus
strength of its brands, your Company recorded a 10.5 per
will remain on key functional areas required to maintain
cent growth in net sales, from Rs.1,148 crore in 2003-04 to
continuity in the different businesses, in the medium term
Rs.1,268.7 crore in 2004-05. This healthy top-line growth,
the Company will endeavour to fully-integrate the value
accompanied by efficiencies in manufacturing and supply
systems and knowledge based capabilities of the two
chain, contributed to a 36 per cent growth in operating
organisations.
profits (EBIDTA) from Rs.138.2 crore in 2003-04 to Rs.187.9
crore in 2004-05.
FINANCIAL PERFORMANCE Driven by much tighter working capital management,
The abridged financials of Dabur India Limited (DIL) for the interest outgo decreased by 37.7 per cent from Rs.6.9 crore
year 2004-05 including revenue, expenditure and profits, in 2003-04 to Rs.4.3 crore in 2004-05. The company also
are presented in Table 2. continues to operate with negative working capital. These
factors have contributed to an impressive 46.3 per cent
It may be noted that Dabur’s financial results as on 31 March
growth in profit after tax (PAT) from Rs.101.2 crore in 2003-
2005 do not account for the Balsara acquisition, which come
04 to Rs.148 crore in 2004-05. As can be seen in Table 3, all
into effect from 1 April 2005.
profitability ratios of the Company have gone up in the
year under review.

20 Dabur India Limited • Management Discussion & Analysis

Table 3: DIL’s Profitability Ratios (%) Table 4 : Consolidated, Abridged Profit & Loss Account
(Rs. crore)

2004-05 2003-04


Dabur Dabur Growth
EBDITA/Sales 14.8 12.0 Consolidated Consolidated (%)
PBT/Sales 13.0 9.9 2004-05 2003-04
1 Net Sales 1,537.0 1,329.6 15.6
PAT/Sales 11.7 8.8 2 Other Income 9.2 9.1 1.5
ROCE 38.7 34.9 3 Total Revenue 1,546.2 1,338.6 15.5
4 Total Expenditure 1,328.1 1,170.4 13.5
RONW 44.5 38.6 5 EBIDTA 218.0 168.3 29.6
6 Depreciation 28.0 24.9 12.5
There has been a significant improvement in operating
7 Amortisation 1.5 3.9 -61.5
margin (EBDITA/Sales), which grew from 12.0 per cent in
8 Interest 12.4 15.3 -18.6
2003-04 to 14.8 per cent in 2004-05. Net profit margin (PAT/ 9 PBIT 188.5 139.4 35.2
Sales) has also grown from 8.8 per cent 2003-04 to 11.7 10 PBT 176.1 124.2 41.8
per cent 2004-05. The improved margins have been 11 Current tax 15.1 11.4 33.0
primarily driven by two factors. First, due to improvements 12 Deferred tax 4.0 3.5 14.6
in supply chain and manufacturing, the costs have been 13 PAT 157.0 109.3 43.6
driven down substantially. Second, with the commissioning 14 Minority interest (1.2) (2.8) -57.0
15 PAT after 155.8 106.5 46.3
of the Jammu, Baddi and Rudrapur plants—all located in
minority interest
excise free zones— the Company has been able to benefit
16 EPS 5.4 3.7

from the fiscal concessions offered at these locations. 17 EPS (Diluted) 5.4 3.7
Your Company has also found success in reducing its
Driven by impressive growth of the Foods and International
working capital cycle significantly over the last couple of
businesses, the net sales of the Company on a consolidated
years. The net working capital which was at negative 5 days
basis registered a growth of 15.6 per cent from Rs.1329.6
of sales in 2003-04 came down further to negative 20 days
crore in 2003-04 to Rs.1537 crore in 2004-05. The
of sales during 2004-05. Consequently, the ROCE has
consolidated net profit (PAT after minority interest) also
increased from 34.9 per cent in 2003-04 to 38.7 per cent in
posted a strong growth of 46.3 per cent increasing from
2004-05.
Rs.106.5 crore in 2003-04 to Rs.155.8 crore in 2004-05.
The strong bottom line has also pushed up the RONW from As presented in Table 5, all profitability ratios calculated on a
38.6 per cent in 2003-04 to 44.5 per cent in 2004-05. consolidated basis have shown a marked improvement in
2004-05.
The Company has declared total dividend of 250 per cent
which translates into dividend payout ratio of 48.3 per cent. Table 5: Dabur Consolidated, Profitability Ratios (%)
The dividend payout ratio has been maintained inspite of 2004-05 2003-04
significant investments made in manufacturing facilities as EBDITA/Sales 14.2 12.7
well as the Balsara acquisition.
PBT/Sales 11.5 9.3
PAT/Sales (after minority interest) 10.1 8.0
Consolidated Financials
ROCE 31.5 29.2
Table 4 gives the abridged financials of Dabur on a
RONW 43.5 38.1
consolidated basis.

Annual Report 2004-05 21

The highlights of the consolidated performance are as
follows:
• Operating profits (EBIDTA) increased by 29.6 per cent
from Rs.168.3 crore in 2003-04 to Rs.218.0 crore in 2004-
05. Operating margin (EBDITA/sales) also grew from 12.7
per cent in 2003-04 to 14.2 per cent in 2004-05.
• The interest coverage ratio (ratio of profit before interest
and tax to interest payments) has increased from 9.1
times in 2003-04 to 14.8 times in 2004-05.
• Net profit margin (PAT/Sales) increased from 8 per cent
in 2003-04 to 10.1 per cent in 2004-05.
• Return on Capital Employed has gone up from 29.2 per
cent in 2003-04 to 31.5 per cent in 2004-05.
• Return on Net Worth increased from 38.1 per cent in
2003-04 to 43.5 per cent in 2004-05.
RISKS AND CONCERNS
Uncertainties in business offer opportunities and downside
risks. Consequently, your Company recognises the
importance of a well structured system to identify and
manage the different elements of risk. Dabur has
introduced a risk-based control system and appointed risk
officers across all Company locations. The basis of this
process driven risk management system is the risk register
that not only lists a comprehensive set of risks across 15
functional domains but also states control tools under
process owners that are there to minimise each risk. The
inherent risks across operational, strategic and tactical
issues are mapped in terms of likelihood of occurrence
and materiality. Some key areas where risks have been
identified and mitigation tools put in place are:
• Brand Equity risks –These risks are inherent to any
FMCG Company like Dabur, which has a long-term
market standing and high brand equity. They are linked
to issues related to media, PR and competition. The
market space is also filled with counterfeits and spurious
products, which are a threat to the Company’s brand
equity and revenue. There are also inherent risks
22 Dabur India Limited • Management Discussion & Analysis
associated with new products that are constantly being
introduced by Dabur. However Dabur has put in place
necessary systems to mitigate these risks which is
reflected in the high success rate of its new product
initiatives and sustained revenue growth.
• Finance and Treasury risks – apart from regular risks
like authorisation risks, reporting risks and exposure
risks, Dabur, with an increasing international presence,
is continuously exposed to risks associated with foreign
exchange fluctuations. Like any other Company, Dabur
is also exposed to risks attached to economic and
political uncertainty.
• Supply chain and procurement risks – These are risks
associated with the market dynamics of the Company’s
inputs, where the Company needs to take positions.
There are systems in place that enhance transparency
and scientific decision making in procurement and
production planning. Many of the Company’s inputs’are
in the nature of herbs and plant extracts, some of which
are endangered. Your Company has put in place a
system of backward linkages where contract farming
of such inputs is promoted.
• Other set of risks deal with development and retention
of human resources, compliance and regulatory
activities, data security and recovery systems across
the company’s IT infrastructure and issues related to
quality and research and development. The Company
is putting in place a Business Continuity Plan and a
Disaster Recovery Plan to mitigate risks in the event of
unforeseen exigencies.
The enterprise-wide risk management system analyses and
deals with these risks based on the overall objective with a
focus on identifying, assessing and subsequently
developing controls to minimise risks. The framework so
designed ensures adherence to the rules, regulations and
internal policies of the company. A Chief Risk officer has
been appointed, who is responsible for the entire risk
governance of the Company.
INTERNAL CONTROL SYSTEMS AND
THEIR ADEQUACY
Dabur has a robust internal audit and control system. The
internal control system at Dabur is a process, overseen by
the Board of Directors, management and other personnel,
that provides reasonable assurance regarding the
effectiveness and efficiency of operations, reliability of
financial reporting, and compliance with applicable laws
and regulations
Price Waterhouse Coopers is the internal auditor for the
Company and its subsidiaries. The Company’s Internal Audit
function is staffed with qualified and experienced people.
The Standard Operating Procedures (SOPs) put in place by
the Company, are in line with the best global practices,
and have been laid down across the process flows, along
with authority controls for each activity. In the year under
review, Dabur has introduced the COSO framework for
internal controls and adequacy of internal audit. Under this
framework, various risks facing the Company are identified
and assessed routinely across all levels and functions and
suitable control activities are designed to address and
mitigate the significant risks. The Internal Audit Department
reports to the Audit Committee and recommends control
measures from time to time. To read the report of the Audit
Committee on internal control and adequacy, refer to the
section on Corporate Governance of the Annual Report.
OPPORTUNITIES, THREATS AND
OUTLOOK
Dabur is cautiously optimistic about its prospects in 2005-
06. We believe that, if the Indian economy continues to
grow by over 6.5 per cent, demand for FMCG products is
bound to increase. However, a bulk of this demand growth
will be from smaller towns and rural centres. This also points
to the fact that growth will largely be volume driven. The
major concern for 2005-06 is to do with prices of inputs. It
is widely accepted that with output prices under pressure
and input costs being higher, the sector will face margin
pressures.
With the possibility of Foreign Direct Investment being
allowed in the retail sector and consequent entry of large
international retail chains, the FMCG industry will see some
structural changes happening which could result in a strong
growth momentum. Your Company is gearing up to
capitalize on this opportunity by putting in place a
specialized sales structure dedicated to modern retail
channels.
The challenge for your Company in the next financial year
is to be able to accelerate growth and maintain margins.
We believe that by leveraging our herbal specialist brand
equity, offering a wider product portfolio, and strategically
positioning our products in different market segments, we
will largely de-risk ourselves from pricing pressures and
segmental contractions, if any. On the production side,
the location of our plants deriving fiscal benefits, coupled
with procurement and supply chain efficiencies, we will
be able to maintain good margins.
CAUTIONARY STATEMENT
Statements in this management discussion and analysis
describing the Company’s objectives, projections, estimates
and expectations may be’‘forward looking statements’
within the meaning of applicable laws and regulations.
Actual results may differ substantially or materially from
those expressed or implied. Important developments that
could affect the Company’s operations include a downward
trend in the domestic FMCG industry, rise in input costs,
exchange rate fluctuations, and significant changes in
political and economic environment in India, environment
standards, tax laws, litigation and labour relations.
Annual Report 2004-05 23