Management Discussion And Analysis
FMCG SECTOR CONTINUED ON A STEADY GROWTH TRAJECTORY AND CROSSED THE Rs. 2 TRILLION MARKDURING THE YEAR.
During the year under review, the world faced several economic and political challengesranging from the Eurozone debt crisis to continued turmoil in some of the countries inNorth African region. A slowdown in the global economy has taken a toll on many, but notall emerging markets. In fact, as per the 2013 Human Development Report prepared by UnitedNations Development Programme (UNDP), there is a profound shift in global dynamics drivenby the fast-rising new powers of the developing world. The report states that by 2020 thecombined economic output of three leading developing countries Brazil, China andIndia will surpass the aggregate production of Canada, France, Germany, Italy, theUnited Kingdom and the U.S.
The Indian economy grew strongly for a few years after the Global Financial Crisis in2007-08. However, fi has not been one of its best years with deceleration in GDP growthrates, widening fiscal and current account deficits and currency volatility. As perInternational Monetary Funds (IMF) February 2013 India Staff report, thoughIndias growth remains among the highest in the world, the recent slowdown - due tostructural factors such as supply constraints and an unsupportive policy environment, withcyclical and global factors also contributing - is unusual among emerging markets (EMs)for its still-high inflation.
The government though has taken initiatives during the last few months to reverse theslowdown and reduce vulnerabilities. Measures taken include higher diesel prices andquantity limits on subsidised LPG - two challenging but essential measures to rein in thefiscal deficit. Further liberalisation of FDI was announced during the year and a CabinetCommittee on Investment (CCI), enabling single-window approval for large projects, wasconstituted.
As presented in Fig. 1, the Real GDP Growth rate slowed down to 5.0% for fiscal 2012-13as compared to 6.2% in fiscal 2011-12 and 9.3% in fiscal 2010-11. Coupled with this,industrial production decelerated with cumulative growth in the Index of IndustrialProduction (IIP) at 1% for the period Apr-Mar 2012-13 over the previous year. As expected,many sectors such as infrastructure, auto, consumer durables and industrials reported amarked slowdown during the year. The Fast Moving Consumer Goods (FMCG) sector howeverremained more or less steady with some signs of pressure on premium and more discretionaryproduct lines.
As per a recent review of the Indian Economy released by the Prime MinistersEconomic Advisory Council, a recovery in growth and economic activity is expected duringthe fiscal 2013-14 with a growth of 6.4% in GDP.
Post a lot of tightening measures taken by the Government, inflation remained atmoderate levels with WPI based inflation hovering around 7%, though Food inflation and CPI(Consumer Price index) based inflation still persisted at higher levels (Fig. 2).Subsequently, RBI (Reserve Bank of India) reduced the repo rate which now stands at 7.25%.This is expected to enhance the outlook for growth and investments in the Indian economyas interest rates are expected to ease over the next few months.
In spite of near-term pressures, the long term growth prospects of the Indian economyare clearly intact. As per a recent report by Deloitte, India Matters - Winning inGrowth Markets, India is predicted to be among the fastest growing markets in thenext 15 years. The report states that there are two aspects to Indias growth. Firstis the rapid expansion of Indias middle class. By 2020 India is projected to be theworlds third largest middle class consumer market behind China and the USA; and by2030, India is likely to surpass both countries with an aggregated consumer spend ofnearly US$13 trillion. Fig. 3 shows Indias share in spending by the global middleclass, which was sub 1% in 2009, is expected to reach 11% by 2020 and further rise to 23%in 2030 - highest in the world, followed by China at 18%. North America and Europesshare in spending by global middle class was the highest in 2009, but is expected tosubstantially reduce in 2030 to 10% and 20%, respectively.
The second aspect is the increase in income levels of the Indian middle class, which isdriving greater aspirations, the need for world class infrastructure, high qualityhealthcare, branded consumer products, and sophisticated public and private services.
During the year under review, the FMCG industry continued on a steady growthtrajectory. Riding on continued demand for branded food products, personal care, householdcare, baby care and OTC products, the Indian FMCG sector crossed the Rs. 2-trillion markin fiscal 2012-13, as per AC Nielsen. Future growth in the FMCG sector is expected to bedriven by:
Low per capita consumption: Per capita consumption levels in FMCG categoriessuch as skin care, shampoos and toothpastes are much lower in India as compared to othermarkets and is expected to drive growth in future
Favourable demographics: 65% of Indias population is below the age of35 years, making India one of the youngest nations and an important aspect of consumptiongrowth
Low penetration levels of consumer products in most categories
Shift to branded products from unbranded products: Current level ofunorganised market in some of the FMCG categories bodes well for future volume growth ofbranded products
Growth potential in rural markets
Rural India, which comprises around 70% of Indias 1.2 billion population and 240million households, represents a huge opportunity for the FMCG sector and AC Nielsenestimated in its Consumer 360 report that it could touch US$100 billion by2025. At present, the Indian FMCG sector derives around a third of its revenues from ruralmarkets. Growing disposable incomes in the pockets of rural Indians, thanks to a plethoraof measures like higher Minimum Support Prices for agricultural produce, loan waivers andemployment guarantee schemes, have promoted consumption and demand for branded consumergoods in the hinterland. The rural consumers across income segments are exhibiting markedpropensity towards spending on high quality products, which are backed by strong brandvalues. This is reflected in rural consumption growth outpacing urban consumption with thepercentage increase in monthly per capita expenditure in rural markets surpassing itsurban counterparts during the period 2009-2012 (refer Fig. 4).
FIG. 4: PERCENTAGE INCREASE IN MONTHLY PER CAPITA EXPENDITURE - RURAL AND URBAN
Furthermore, recent reports indicate that the incremental consumption expenditure inrural India has been significantly ahead of urban India (Fig. 5).
FIG. 5: INCREMENTAL CONSUMPTION EXPENDITURE IN 2011-12 OVER 2009-10
Overall, India offers huge potential for consumption in both urban and rural marketsand companies such as Dabur, with robust distribution network and deep understanding ofconsumer behaviour, are well positioned to exploit these opportunities.
DABUR PERFORMANCE OVERVIEW
Dabur achieved strong growth in sales and profits during fiscal 2012-13 with its salescrossing the Rs. 6000 crore mark Good growth momentum was witnessed across categories andgeographies with the Domestic FMCG business comprising Consumer Care and Foods and theorganic International Business reporting strong volume driven growth.
As a company, Dabur is highly connected to its consumers and develops products thatmeet their needs and requirements. Dabur has also been at the forefront of innovation witha high degree of consumer insight going into development of each product. Listening to ourcustomers and translating their expectations into business value is an important processat Dabur. It is this deep understanding of the consumer and their specific needs that havehelped us to specially tailor products for them.
Basis this deep-rooted understanding of the ever-changing needs and aspirations of ourconsumers, fiscal 2012-13 witnessed Dabur introduce a number of new products and variants,across categories and geographies. Some of the launches in India during the year includeBabool Salt toothpaste, air-freshening gels under the brand Odonil, Gulabari Saffron &Turmeric Cold Cream and Lotion, Turmeric and Saffron-based bleaches under Fem, newvariants of packaged juices under the brands Ral and Activ and Anardana variant inHajmola. Fiscal 2012-13 also saw Dabur revamp its oldest personal care brand Dabur Amlahair oil in a contemporary and youthful avatar, besides re-launching the acquired healthrejuvenator and energiser brand, Thirty Plus, with an enhanced formulation. DabursInternational Business kept up the strong pace of innovation with several new launchessuch as Vatika Henna based Hair Colors, Vatika Black Seed Oil, Dabur Medicated Toothpaste,Vatika Hair Serums, Curls Unleashed range and others.
To overcome the hurdles posed by a challenging external environment, Dabur has beentaking proactive measures in portfolio, product and channel optimisation. With thereorganisation of our domestic FMCG business in the year 2011-12, the focus this year wason ensuring deeper penetration and more effective distribution of our products. The ruralmarkets are a particular case in point as the aspirations of rural consumers are aligningwith their urban counterparts, leading to a steady shift in consumer preference towardsbranded consumer products. The rural consumer is no longer seeking brands that have beenspecially created for her, but wants the same urban market products that are regularlyseen on national mass media. Thanks to the spurt in MSPs (Minimum Support Prices),employment generation schemes and overall growth in rural economy, the rural consumertoday has more disposable income. In addition, the great rural-urban divide is no longeras dramatic as it used to be a decade ago. With members of several rural householdsmigrating to urban markets, the increasing prosperity of these markets has found itsreflection on rural economy as well. Besides increasing prosperity, media reaching deeperinto rural markets has positively impacted consumption patterns.
Recognising this huge opportunity, Dabur had embarked on Project Double in the latterhalf of fiscal 2011-12 to enhance presence in rural India. The project was completed infiscal 2012-13 and we have more than doubled our direct reach to 30,091 villages from14,865 villages in March 2011.
Post completion of this project, we have witnessed an increase in our product width inrural markets which has translatedintohigherandmore Word of mouth plays an important rolein communicating the word from a trusted source is the best endorsement any product canget, more so in the rural context where just leveraging mass media is not enough. Here,the product attributes and benefits are best communicated through initiatives that helpthe consumer touch, feel and experience them. Our efforts in reaching out to the ruralconsumer and designing campaigns that interact and engage her helped us build strongconsumer connect, resulting in rural markets outpacing urban markets. For instance,consumer engagement initiatives through haats and fairs like Kumbh mela, Nauchandi mela,Sonpur mela provided rural consumers with an opportunity to experience Dabur products.
We embraced technology in a big way to service our customers better and establish moreefficient channels of communication not only within the company but also with ourdistributors and channel partners. On one hand, we deployed valuable time and enabled thesales team to focus on their core activity of selling with greater efficiency. On theother hand, Dabur is connecting with its consumers and key stakeholders from nearly everygeography and demographic profile in the digital world. By creating interfaces on thedigital social platform, Dabur as an entity and its various brands are reaching out toconsumers, interacting with them and, in the process, enabling them to become our brandambassadors.
These initiatives have helped Dabur drive demand and generate strong volume-led growtheven in a year that has been challenging for the economy.
The highlights of Dabur India Ltds performance during fiscal 2012-13 on aconsolidated basis are:
Sales grew by 16.3% to Rs. 6,146.4 crores in fiscal 2012-13 from Rs. 5,283.2crores in fiscal 2011-12
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA)increased to Rs. 1,124.3 crores in fiscal 2012-13, from Rs. 947.6 crores in fiscal2011-12, recording a growth of 18.7%
Profit After Tax (PAT) increased to Rs. 763.4 crores in fiscal 2012-13 asagainst Rs. 644.9 crores in fiscal 2011-12, up by 18.4%
Earnings Per Share (EPS) increased to Rs. 4.35 in fiscal 2012-13 from Rs. 3.68in fiscal 2011-12
STRATEGIC BUSINESS UNITS
Following the reorganisation and unification of our various business verticals infiscal 2011-12, the entire business structure today stands as below:
Consumer Care Business incorporating the Health Care and Home & PersonalCare (HPC) verticals. This accounts for 54.5% of the consolidated sales
Foods comprising fruit-based beverages and culinary pastes business, whichcontributes 10.8% to consolidated sales
International Business, which includes Daburs organic overseas business aswell as the acquired entities, Hobi Group and Namaste Laboratories LLC. This vertical nowaccounts for 30.5% of Daburs consolidated sales cient IT systems that helped
CONSUMER CARE BUSINESS
The Consumer Care Business which is the largest segment contributing to 54.5% ofconsolidated sales, registered growth of 13.3% during fiscal 2012-13. The segment isdivided into Health Care and HPC verticals.
FIG. 7: CATEGORY-WISE CONSUMER CARE SALES BREAKDOWN
Dabur is committed to its motto of being dedicated to the health and well-being ofevery household. With a legacy and experience of over 128 years, Dabur is todayIndias most trusted healthcare brand and worlds largest Ayurvedic and NaturalHealth Care Company. Dabur has, in fact, been voted as the Most Trusted Health Care &Ayurveda brand for the second year in running in the Brand Trust Report, the mostcomprehensive list of Indias Most Trusted Brands prepared by Trust ResearchAdvisory.
With the new unified distribution healthcare vertical, Dabur has been rolling out anumber of initiatives to further deepen its commitment towards the health and well-beingof its consumers. Health is increasingly taking prime space in the minds of consumers, notjust in urban India, but also in the hinterland. Health awareness is growing acrossage-groups, geographies and socio-economic classifications. While the urban consumer isbattling concerns about lifestyle diseases such as diabetes, obesity etc., there is also agrowing realisation among the rural populace about the need to stay healthy and therebynot just reduce the burden of healthcare costs, but also not lose wage-earningopportunities due to illnesses. Preventive healthcare is increasingly becoming the need ofthe hour.
The year saw Dabur take Health Care to the digital world with two dedicated portals www.daburmediclub.com and www.liveveda.com. The portal www.daburmediclub. com isaimed at connecting and creating a network of medical professionals, both Ayurvedic andAllopathic and disseminating information regarding various Ayurvedic and health careproducts from Dabur. This portal also provides medical professionals an easy access to thevarious clinical and pre-clinical trials/studies conducted on various products andmedicines from Dabur. Today, we have over 40,000 practicing doctors registered with Daburthrough www.daburmediclub.com and around 9,000 of them interact with us on a regularbasis.
On the other hand, www.liveveda.com is an effort to reach out to consumers who areincreasingly taking to the digital world to seek information about not just general healthand wellness, but also consultation and remedies for common ailments. An increasing trendis fast developing in India where consumers are seeking solutions to ailments andscientifi information looking on healthcare issues on the Internet. This portal hasbeen developed with the intent to ride this trend and also connect with the digitallyactive consumers in the virtual world. Dabur has built a network of doctors and experts onthis portal, who regularly interact with consumers, addressing their health queries anddisseminating information regarding health care besides offering health solutions.
In addition to these digital initiatives, a special exercise is underway to betterconnect with key opinion leaders from among the doctor fraternity, through a series ofnetworking meetings and conferences. in place for its Daburs Health Care verticalcomprises Health Supplements, Digestives, OTC and Ayurvedic Ethical Products. Dabur has ahighly experienced R&D (Research & Development) team and access to the centuriesold knowledge of Ayurveda, which have been combined with the latest in science to developefficacious products that offer holistic health and well-being.
The Health Supplements portfolio grew by 16.2% in fiscal 2012-13 and now contributes21.3% to Consumer Care sales. The three key brands in this portfolio are DaburChyawanprash, Dabur Honey and Dabur Glucose. This is, in fact, the only category which hasall its brands present in Daburs Billion Rupee Brands portfolio i.e. with turnoverin excess of a billion rupees.
Fiscal 2012-13 saw Dabur roll out initiatives to drive further growth for each of thesebrands. Dabur Chyawanprash, the largest brand in the portfolio, witnessed steady growthand maintained market share, in spite of lower offtakes in the institutional channels. Thefruit-flavoured variants continued to attract new consumers and added to the flavorprofile the brand. Dabur Chyawanprash was re-launched during the year in a new pack,pitching the brand as an immunity specialist. This specialist positioning was based onpre-clinical studies which proved that just two spoonfuls of Dabur Chyawanprash every daycan strengthen a persons immunity by 3 times. This campaign was very well receivedand the 3 Times More Immunity message was prominently displayed on the newpack. To increase awareness about the need to build immunity, the brand launched anationwide school contact initiative christened Dabur Chyawanprash Immune India SchoolChallenge, which sought to identify and reward the Most Immune Schools and students ofIndia, besides highlighting the need for developing a strong body immune system amongstparents, children and teachers. Under this initiative, we reached out to 2,500 schoolsacross India through an on-ground, television and print campaign.
The other major brand in this category, Dabur Honey, which is the largest branded honeyin India, continued to report strong growth despite stiff competition from regionalplayers and price increases due to a surge in raw material prices. Riding on a newLove Yourself campaign, featuring cine star Bipasha Basu that sought toestablish Dabur Honey as a weight management expert and other marketing efforts, the brandgrew across regions, SKUs and channels.
Dabur Glucose performed well driven by a combination of marketing efforts and seasonalfactors. The year saw Dabur Glucose move away from the generic positioning of energy to amore focused and differentiated proposition of cooling energy. This shift, communicatedthrough a mega campaign featuring cricketer Sourav Ganguly and a high-decibel schoolcontact programme in key markets helped the brand gain market share. The various Glucoseflavours are increasingly becoming popular. With summers already knocking on our doors, wehave prepared a number of initiatives to drive growth for Dabur Glucose, going ahead. Aspart of these, the company has signed up cine star Ajay Devgn as the new brand ambassadorto endorse the product and new campaigns featuring him will hit the television screensthis summer.
The Digestives portfolio which contributes 7.2% to Consumer Care sales grew by 3.9% infiscal 2012-13. Following the business reorganisation in 2011-12, the digestive businesshas now gained scale with consolidation of all digestive brands under one category. Thoughpacked with a variety of products ranging from Pudin Hara, Hingoli and Nature Care to SatIsabgol, Lavan Bhaskar Churan and Triphala Churan, the Digestives category continues to bedominated by Hajmola as being the largest brand in the portfolio.
With increasing scale and formats in this portfolio, we rolled out a pilot initiativein Delhi-NCR to expand the distribution footprint to cover neighbourhood Paan outlets.Hajmola, with its digestive tablet and candy formats is a good fit for this channel and islikely to be positively impacted by this initiative. In addition, during fiscal 2012-13, anew communication campaign featuring Ajay Devgn was rolled out for Hajmola.
To further establish Hajmola as a post-meal digestive, Dabur rolled out a megaconsumer-connect initiative at the recently concluded Kumbh Mela. In addition, samplingactivities were also undertaken at schools, high-speed trains like Shatabdi and Rajdhani,food joints across the country and among dabbawalas in Mumbai.
The Hajmola variant range was further expanded this year with the introduction ofHajmola in an Anardana (pomegranate) flavour strategy to introduce more ethnic Indianflavours in Hajmola.
Following the successful consolidation of Pudin Hara franchise within the overallDigestives vertical, we have now started putting in place initiatives to take this brandto the next level. To begin with, Dabur rolled out a high-decibel advertisement campaignand on-ground initiatives to promote Pudin Hara. In addition to promoting the brand, thiscampaign also sought to educate consumers particularly in rural India about lookalikes andspurious products, and thereby expand the consumer base. Nature Care, Dabur Hingoli andSat Isabgol which are the other brands in the Digestives portfolio performed well duringfiscal 2012-13. Triphala and Lavan Bhaskar Churan, which were added to the digestivescategory as part of the business re-organisation last year, helped drive growth.
The OTC products portfolio, which is 7.6% of Consumer Care, registered growth of 15.6%in fiscal 2012-13. The vertical offers a variety of OTC products in sub-segments such asBaby Care, Cough & Cold, Mens Health Care and Womens Health Care. Thedistribution enhancement initiatives initiated in fiscal 2011-12 helped improve the reachof Daburs baby care range in rural and urban markets. Packaging up-gradation wasalso undertaken, under which the entire baby care range is now being promoted on everyindividual product pack, thereby informing consumers about the range of baby care productsavailable in the Dabur portfolio.
With a wider distribution network in place, Dabur undertook major initiatives bothon-ground and through mass media to spread awareness about various products and their wereexecuted across chemist outlets to reach out to consumers and enhance the availability ofour products.
A number of these new awareness creating initiatives were centered around DabursBaby Care range, particularly the flagship brand Dabur Lal Tail. A study was undertaken tounderstand various consumer needs regarding the brand and special campaigns were createdbasis the feedback received from consumers. An independent clinical trial to assess theefficacy of Dabur Lal Tail on growth of neonates
(new-born infants) and infants has rated Dabur Lal Tail as the most effective massageoil for height and weight growth for infants. The study noted that Dabur Lal Tail offers"Twice" faster height and weight growth among infants as compared to no massageat all. As part of a consumer-connect initiative, the product was also sampled with alarge number of new mothers. Riding on these initiatives, Dabur Lal Tail has witnessed anuptick in market shares.
In the Cough & Cold category, Honitus continued to perform well. Besidesintroducing the brand in a new single-dose sachet format, new campaigns were rolled outhighlighting its efficacy and safety. A year ago, we had initiated a brand health studyand clinical research on Honitus, which proved that it is as efficacious as allopathicbrands yet at the same time it has no harmful side-effects and doesnt causedrowsiness. The new campaign was based on this research and helped not only increaseawareness about the brand but also generate trials and bring in new consumers byconverting users. A special drive was also undertaken targeting paediatricians andchemists.
The Mens Health Care category too reported strong double digit growth, led by theflagship energiser brand Shilajit Gold. Riding on the strength of focused print mediaadvertisements and word-of-mouth publicity, the company saw demand for Dabur Shilajit Goldgrow at a robust pace. As part of its effort to provide consumers greater convenience,Dabur has launched an online shopping portal for Shilajit Gold -www.daburshilajitgold.com. In fiscal 2011-12, Dabur had acquired the OTC energiser brand,Thirty-Plus, from Mumbai-based Ajanta Pharma Limited.
The fiscal under review saw Dabur re-launch Thirty Plus in a powerful new avatar withan enhanced formulation keeping the energy needs of todays youth in mind. Dabur alsoroped in Bollywood cine celebrity Malaika Arora Khan as the new brand ambassador forThirty Plus.
In addition, special visibility and awareness campaigns were launched for Daburskey womens health care brands - Dashmularishta and Ashokarishta Asavs. The newcommunication sought to extend the brands usage and relevance beyond the post-natalperiod and established them as the perfect products for overall rejuvenation.
Dabur has a wide range of ethical healthcare products based upon the age-old system ofAyurveda. Dabur today has a range of about 250 ethical medicines that are derived fromherbs and form part of this holistic healthcare system, focusing on all-round well-being.The Ayurvedic Ethicals portfolio, which contributes 4.1% to Consumer Care, performed wellgrowing by 17.2% during fiscal 2012-13.
The range was promoted aggressively through focused activities at Dabur AyurvedicCentres, in addition to special Health Camps and Vaid (Ayurvedic doctors) meets throughoutthe year. Fiscal 2012-13 also saw Dabur establish an Ayurvedic Health Care Centre inDelhi, where free consultation is offered by Ayurvedic practitioners and Ayurvedicmedicines are sold. This centre seeks to promote Ayurveda among the urban Indians, besidesenhance availability and visibility of Ayurvedic medicines.
HOME & PERSONAL CARE
The Home & Personal Care (HPC) vertical in Daburs Consumer Care Businessconsists of large and highly competitive FMCG categories viz. Hair Care (Hair Oils andShampoos), Oral Care (toothpastes and toothpowder) and Skin & Body Care, besides ahost of Home Care products like Mosquito Repellents, Air Fresheners and Toilet Cleaners.
Almost all of these categories have been witnessing high levels of competitiveintensity in the recent years with the entry of new players and existing players executingdisruptive strategies. This combined with hardening of key raw material prices threatenedto put margins under pressure.
Dabur, on the strength of its well established brands and differentiated productofferings, mitigated the risks through a combination of calibrated price increases andsustained media and consumer campaigns, ending the year with strong volume-led growth. Webelieve that consumer satisfaction is the single most important measure of success for usand the increasing demand for our products in spite of stiff competition validates thetrust that consumers place in them.
During Hair Oils and Shampoos crossed the Rs. 1,000 crore mark in sales. The portfoliogrew by 11.7% during fiscal 2012-13 and contributes to 29.6% of the Consumer CareBusiness.
Dabur is among the key players in the Hair Oils category and this is one of the oldestand largest personal care businesses of Dabur. The hair oils category in general has seengood growth in the last few years with consumers upgrading to branded and value addedproducts. During fiscal 2012-13, the Hair Oil category reported growth of 9.0% withDaburs perfumed hair oil offerings leading the performance.
Daburs flagship hair oil brand Dabur Amla Hair Oil has now established itself asthe largest and most preferred perfumed hair oil brand in the country with a consumer baseof over 60 million users. The year marked the re-launch of Dabur Amla Hair Oil with ayounger, modern look, a brand new product proposition of "Mazbooti bhi, Khubsooratibhi" and Priyanka Chopra as the new brand ambassador. Dabur Amla Hair Oil has alwaysbeen associated with beauty and has been known for strong, healthy, long and beautifulhair. Its new identity now has Priyanka Chopras face on the front label, making thisover 60-year-old brand more contemporary and relevant in consonance with todayslifestyle. The new look maintains the continuity with the brands association withbeauty while infusing a youthful appeal. The company continued to move forward on itstwo-pronged strategy with Dabur Amla, targeting the mustard oil users in the Hindi belt onone hand and communicating the benefit of Dabur Amla to consumers in South India on theother. To drive home this message in South India, we roped in popular South Indian cinestar Kajal Agarwal as the new brand ambassador for its key markets.
The latest entrant in Daburs hair oil portfolio, Dabur Almond Hair Oil performedwell during the first full year of its launch and met our expectations. Dabur Almond HairOil has twice the amount of Vitamin E as compared to some of the other almond hair oilsand also has Almond Protein, which are vital nutrients known for hair health.
Daburs coconut hair oil brand, Vatika Enriched Coconut Hair Oil, saw somepressure due to high differential in pricing as plain coconut oil prices remained softduring the year and Vatika which is a value added coconut oil enjoys a premiumpositioning. However, the brand proposition remains strong and is proposed to bestrengthened further. To establish Vatika as the preferred coconut hair oil brand amongthe youth in South India, the company organised a mega model hunt Search for VatikaStar in Hyderabad. The winner of the contest got an opportunity to feature in thenext advertisement of Dabur Vatika Enriched Coconut Hair Oil.
Daburs shampoo range under the Vatika brand performed well growing by 30.4%during fiscal 2012-13. Vatika Shampoos were re-launched as Dabur Vatika Premium Naturalsrange and all four variants have been enriched with more efficacious natural ingredientslike Henna, Olive Oil, Black Olive, Almond, Lemon and Tea Tree Oil. Dabur also rolled outa new campaign featuring Priyanka Chopra to communicatethe
Skin & Body Care
The Skin & Body Care business, a relatively newer segment for Dabur, comprises twokey brands - Fem (for fairness bleaches and hair removing creams) and Gulabari (forRose-based skin care products). This category saw a flurry of activity during the yearwith the addition of new products, revamping of existing brands and roll-out of megacampaigns. The portfolio grew by 15.4% in fiscal 2012-13 and comprises 6.4% of ConsumerCare business.
During 2012-13 the Fem facial bleach portfolio was re-staged with the launch of a newrange containing natural ingredients like Turmeric, Saffron and Pearl. The brand alsobrought together its brand ambassador Sonakshi Sinha and her mother Poonam Sinha for thefirst time in a new ad campaign to promote the new and improved range of Fem facialbleaches. This was the first time that the mother and daughter duo were seen sharingscreen space, and they took forward Fems message of Long Lasting HealthyFairness which comes from its new natural ingredients.
Fems hair removing cream, which was re-launched during the year with a newanti-darkening property, posted strong double-digit growth post restage. In addition,Fems hand wash range posted steady growth.
The Fem and Oxy range of professional facial and body care kits have been well acceptedby the consumers and is today available at over 15,000 parlours across the country.
During the 2012-13 fiscal, the Gulabari brand underwent a complete overhaul, beginningwith the launch of a new-look Gulabari beauty queen pack in the early part of the year tocommemorate Gulabari girl Vanya Misras being crowned as Femina Miss India 2012. Inaddition, the Gulabari skin care range was extended with the launch of Gulabari Saffron& Turmeric Cold Cream & Lotion. The Gulabari Saffron & Turmeric Lotion packalso carried Vanya Misras face on the front label. This introduction is in line withthe strategy of expanding the skin care range under the brand Gulabari offering thebenefit and fragrance of roses.
Daburs Oral Care portfolio grew by 10.3% during fiscal 2012-13 and comprises16.9% of Consumer Care Business. The portfolio comprises two key product categories -toothpaste and toothpowder.
The toothpaste portfolio grew by 10.6% during fiscal 2012-13 with our premiumtoothpaste offerings - Dabur Red Toothpaste and Meswak witnessing robust growth. In spiteof heightened competitive intensity, we maintained our market shares in the toothpastecategory. Dabur Red Toothpaste, with its strongly differentiated positioning, has helpedthe company make further inroads into South India in addition to the traditional North,East and West markets. Besides sustained media activity on the brand, Dabur rolled out amega school contact programme which sought to increase oral hygiene awareness amongchildren across the country.
Babool brand, which operates in the economy segment, remained sluggish during the yearon account of heightened competition at lower price points and pressure on the valueproposition. The value proposition is being enhanced through launch of value addedvariants at higher price points. During the year the company launched Dabur
Super Babool+Salt Power Toothpaste, which is Indias first natural toothpastepacked with two powerful oral care ingredients - Salt and Babul Acacia Arabicaextracts. Dabur also roped in Bollywood actor Irrfan Khan as the new face of Babool Salt.
Daburs toothpowder portfolio under the brand Lal Dant Manjan reported growth of9.4%. The brand Lal Dant Manjan reported steady demand, riding on rural activationprogrammes that sought to convert non-dentifrice users to toothpowder.
Daburs Home Care portfolio continued on a strong growth trajectory and grew by25.3% driven by new launches, focused media activity and high-decibel consumer-connectinitiatives across product categories. The portfolio comprises 6.9% of Consumer CareBusiness.
Odonil, Daburs leading home and air freshening brand, emerged as the key driverof growth in this category despite stiff competition from branded and private labeloperators on one hand and unorganised sector on the other. During fiscal 2012-13, Odonilwas launched in an innovative gel format. This new introduction from Odonil is meant forliving spaces in the home, such as drawing and living room, and is also equally convenientfor use in cars as an air freshener. With this launch, Dabur has established Odonil as acomplete air freshening expert, offering a variety of air care solutions for every spacein your homes.
The mosquito repellent brand Odomos reported strong growth during fiscal 2012-13,riding on aggressive education and community service initiatives across markets. A schoolcontact programme was also initiated to educate kids about the various mosquito-bornediseases and ways to protect themselves from mosquito bites.
The toilet cleaner brand Sanifresh also performed well during the year and gainedmarket share. It is now the number two brand in toilet cleaner category. A sustained mediacampaign, featuring cine star Karisma Kapoor, focusing on Sanifreshs new formulationthat makes it twice better than competition in terms of its cleaning properties, helpedthe brand grow well in this competitive segment.
Daburs Foods segment was the star performer growing by 24.5% during fiscal2012-13 driven by continuous innovation and sustained demand for our packaged fruit juices& nectars under the brands Ral and Ral Activ. In fact, Ral Fruit Juice is now amore than Rs. 5 billion brand. Interestingly, demand for the packaged juices & nectarscame not just from urban India, but also from the rural pockets, thanks to our recentlyconcluded rural distribution enhancement initiative - Project Double. Our fruit-basedjuices & beverages portfolio witnessed market share gains in both General Trade andModern Trade in fiscal 2012-13.
Daburs Foods business today includes fruit juices, besides culinary pastes andpures under the brand Hommade.
Dabur continued to introduce new juice variants under the brands Ral and Ral Activto drive demand and also generate excitement in the market. Some of the new introductionssuch as Ral Plum, Ral Activ Fiber+ Banana Strawberry and Green Apple Punch receivedencouraging response. Fiscal 2012-13 also saw Dabur test market packaged 100% tendercoconut water under the brand Ral Activ.
A host of trade and consumer initiatives were launched during the year and the divisionparticipated in popular trade fairs to reach out to a large number of consumers and samplethe new variants. Ral joined hands with the popular Cartoon Network character Ben10 toreach out to kids with the 200 ml packs. Under this tie-up, specially designed 200 mlpacks of Ral were introduced with Ben10s popular alien characters on the front ofthe pack.
Both Real and Real Activ launched new TV campaigns this year with brand ambassadorsSonali Bendre and Bipasha Basu, respectively. The campaigns were very well received byconsumers, thereby enhancing key equity parameters for the brand. This was the first yearwhen Real and Real Activ started their social media campaign on digital platforms likeFacebook and Youtube. In a short period of time, Real has attracted over 2 lakh and RealActiv 1 lakh fans.
Rals special occasion gift packs, initially offered during Rakhi and Diwali,have become hugely popular. Responding to consumer demand, we have now started offeringsimilar specially designed gift packs for other occasions and festivals such as Baisakhi,Lodhi and Christmas etc. This has added to the excitement around the brand and indicatesits growing popularity.
During the festive season in 2012, Ral launched a unique signature campaign, titledDil se Dua, wherein the brand sought support for underprivileged children.Dabur encouraged people to sign on a pledge to support the kids and against eachsignature, Dabur committed to give one pack of Ral fruit beverage to a needy kid.
Daburs culinary paste brand Hommade also undertook a consumer connect initiative,through a pan-India culinary contest to identify and acknowledge the unsung culinarytalents in Indian homes. The winner of this contest will get to visit New York and cookalongside acclaimed Master Chef Vikas Khanna in his Michelin-starred restaurant Junoon.
Daburs International Business continued on the strong growth trajectory growingby 17.1% to Rs. 1,892 crores in fiscal 2012-13. The international business now contributes30.5% to consolidated sales. Our major international markets are Middle East, Africa, Asia(ex-India) and the U.S.
FIG. 8: REGION-WISE INTERNATIONAL SALES BREAKDOWN
Dabur follows the "Think Global, Act Local" strategy for its InternationalBusiness. In line with this approach, Dabur has tailor-made a suite of products cateringto the local requirements which is why majority of its customers are the local people. Thebusiness has successfully launched snake oil, under the Amla brand, which is a traditionalcategory in womens hair styling; Vatika Hammamzaith, a deep-conditioning hairtreatment; Vatika henna hair colours; Vatika herbal hair creams; and Vatika enriched hairoils are a few examples of localised product innovations. This strategy of localising theproducts is supported by insightful communication and media innovations to break throughthe clutter and occupy a unique space in the minds of the consumer.
Dabur understands the science of life and is a global leader in Ayurveda. We haveextended our Ayurveda expertise to ensure a better life for consumers across the world.Our knowledge has given us a competitive advantage since consumers are keen to movetowards nature-based formulations which form the cornerstone of our product portfolio evenin international markets.
MIDDLE EAST (INCL. TURKEY)
Middle East, including Turkey, is our largest international geography by sales,comprising 36% of International Business. Our biggest markets in Middle East are GCC (GulfCo-operative Council), particularly KSA (Kingdom of Saudi Arabia), UAE, Kuwait and Oman.In this region, we operate in categories such as Hair Oils, Hair Creams, Shampoos and HairGels. The region performed well during fiscal 2012-13.
GCC is a large market for us and contributes 21% to the International Business. WithinGCC, Saudi Arabia which contributes 10% to our International Business witnessed an uptickin Hair Oil market shares to 65.7% v/s 63.4% last year and there was an increase in ourmarket share in the Hair Creams category to 27.7% v/s 24.7% last year. In UAE, our HairCreams market share increased to 26.5% v/s 23.4% last year.
The region witnessed considerable new product activity comprising launch of newproducts such as Vatika Hair Oil Curry Leaves, Vatika Enriched hair oil (Black Seed),Vatika Ingredient Range of Shampoo and Conditioner in Argan, Garlic and Black Seedvariants. In addition, Vatika Hair Serums were launched entering the Hair Serum category.Vatika Henna Hair Colors were launched during the year marking our entry into Hair Colorscategory on the naturals platform. We had made a foray into Hair Gels category in fiscal2011-12 with the launch of Vatika Hair Gels which continued to perform well, garneringshare in the hair gels segment. Our skin care offerings such as skin creams and lotionsunder the Dermoviva brand launched during fiscal 2011-12 elicited positive response.
Turkey-based Hobi Group, which we had acquired in fiscal 2010-11, performed well duringthe year, contributing 10% to sales of International Business. Fiscal 2012-13 saw thecontinued integration of markets and processes for Hobi Group and Dabur with the Gulf andAfrican regions recording impressive sales growth. The Hobby range of products wasintroduced through Daburs distributors and channel partners in this region, whichdrove good momentum for the brand and enabled it to enter new geographies. As part of theintegration process to unlock synergies between Dabur and Hobi, Fem brand fromDaburs portfolio was launched in Turkey. The range of products launched includes waxstrips and hair removal creams, which have been specially formulated for the Turkishconsumer. The range will be distributed by Hobi Kozmetik across leading modern tradeoutlets in Turkey. In addition, the ERP platform, SAP was successfully rolled out acrossall functions in Turkey, enabling seamless information flow, thereby ensuring completedata integration between Dabur and Hobi Kozmetik. Best practices are continuously beingshared across functions to enable growth of the business in Turkey as well as the exportmarkets.
Africa contributes 21% to our International Business. The region with a population ofaround one billion offers huge potential for the consumer sector in the long run driven byfactors such as rapidly emerging middle class and increasing disposable incomes.
At present, our key markets in Africa are Egypt and Nigeria and these two marketstogether comprise 13% of our International Business. In Egypt, we continued to gain marketshare in Hair Oils, which increased to 50% from 44% last year. Vatika is the no. 1 hairoil brand in Egypt and Dabur Amla Hair Oil, which is now the 2nd biggest Hair Oil brand inEgypt, witnessed increase in market share from 16% tion to 19%. The political climate andother macro-economic factors did weigh on our business in Egypt during fiscal 2012-13. InNigeria, though there were minor upheavals, our toothpaste business witnessed stablemarket shares and we launched Dabur Natural Medicated Toothpaste during fiscal 2012-13.
We have major plans for expanding our presence in Africa and the acquisition of NamasteLaboratories, LLC in fiscal 2010-11 was a step in this direction. With our organicbusiness we were operating in Hair Oils, Hair Creams, Shampoos and Toothpaste categoriesin Africa, but with the acquisition of Namaste Laboratories, LLC we now have a productrange specifically suited for people of African origin. Namaste has a range of HairStraightening and Relaxing products along with nourishment products such as Olive Oilbased Shampoos, Conditioners and Hair Fertilisers. Namastes product range combinedwith our erstwhile products provides a broad range of products for a deeper push inAfrica. Accordingly, Dabur has established a dedicated business unit for Sub SaharanAfrica, tasked with further enhancing our presence in Africa. To optimise the supply chainfor Namastes products in Africa, we have started manufacturing Namaste products inour Ras-al-Khaimah facility in UAE and are considering adding another line at our existingmanufacturing facility in Nigeria. Further, local manufacturing is being considered inSouth Africa, thereby ensuring that Dabur continues to tap into the growing potential ofAfrica. During the year, the company streamlined the distribution networks in thesemarkets in order to extend the reach and availability of Namaste products.
Asia (ex-India) contributes 17% to our International Business. Our key markets in thisregion are Nepal, Bangladesh and Pakistan.
Nepal, which comprises 9% of International Business, grew by 13% during fiscal 2012-13with strong growth in Foods, Glucose, Honey and Oral Care. The year witnessed new launchessuch as Prostyl Hair Cream, Gluco Plus C, Special Jasmine Hair Oil and Real Fibre plusvariants (Green Apple & Banana Strawberry). In addition, efforts were made tostrengthen the distribution with appointment of new stockists and increase in directcoverage. Overall the business performed well in spite of headwinds such as infla andpolitical overallloweconomicgrowths,high upheavals.
Our business in Bangladesh continued on a strong growth trajectory in fiscal 2012-13and grew by 70% driven by strong growth in Hair Oils, Toothpastes and Honey. Bangladeshnow contributes 4% to International Business revenues. Dabur Red Toothpaste was launchedin Bangladesh during the year. Enhancement of direct distribution was a key area of focusduring the year. In addition, the green field manufacturing facility near Dhaka is nearingcompletion and this will supplement our existing capacities and help us meet our futurerequirements.
Pakistan performed well and grew by 38% in fiscal 2012 -13. Hajmola and Dabur Amla arethe two strong brands for the region.
Our U.S. business contributes 22% to the International Business. Daburs presencein the U.S. is largely an outcome of the acquisition of Namaste Laboratories, LLC infiscal 2010-11, which has Hair Straightening, Relaxing and Nourishment products for thepeople of African origin. The strategic rationale for acquiring Namaste Laboratories, LLCwas to leverage this product suite and our distribution in Africa to further expand ourbusiness in that region.
During fiscal 2012-13, we had undertaken a major exercise and rebranded NamastesOrganic Root Stimulator brand as ORS. The rebranding exercisecaused disruptions in business during fiscal 2012-13 which put some pressure on revenues.
The exercise is now largely complete with the brand being rolled out nationally and weexpect a steady recovery going ahead. In addition, we have strengthened Namastesmanagement team and placed some of the key managers from our organic InternationalBusiness in the U.S.
Namaste continues on the innovation path and recently launched Curls Unleashed range ofproducts in the U.S. It is a full line of products to help prep, style and maintainnatural curls. These products are on the natural platform and are made with naturalingredients like sweet almond oil and shea butter. The brand has received a positiveinitial response from the market.
At present, Namaste derives around 70% of its revenues from the U.S. and the rest frommarkets like Africa, Europe, Caribbean and Middle East.
In addition to the Namaste business, Dabur also sells some of its own products in theU.S. to the ethnic Indian community and has a small private label oral care businesscatering to institutional buyers. This business witnessed steady growth during the year.
SALES & DISTRIBUTION
Farm Focus has clearly been the buzzword across India all through lastyear. While the overall macro-economic situation continued to be challenging, the ruraleconomy displayed resilience, reporting growth ahead of urban markets.
Substantial investments by government to uplift rural economy have resulted insignificant increase in rural incomes, which has, in turn, improved their standards ofliving. An efficient sales & distribution network is one of the most critical factorsto tap this emerging potential. ower oil, Sales in rural markets are particularlyimportant to Dabur, with the hinterland accounting for almost 46% of sales in terms ofconsumption from markets with population of less than 50,000. While catering to ruralmarkets, one of the biggest challenges is to build a robust network that can penetratedeeper into the hinterland while being highly cost effective. With these challenges inmind, Dabur last year embarked on a rural distribution enhancement initiative calledProject Double, targeting the vast rural terrain.
Daburs ambitious Project Double, which was aimed at enhancing direct coverage inrural India, has been successfully implemented across 10 key states that contribute to 72%of the rural FMCG potential. Within these states, 287 prosperous districts were targetedfor this drive. Field resources were more than doubled as a part of the project. Ruralsalesmen were provided mobile devices through which they report sales and coverage data.Post this project we have witnessed increase in our product width in rural markets whichhas translated into higher and more profitable sales.
FIG. 9: DABUR - DIRECT VILLAGE COVERAGE
This rural expansion was scientifically driven using digitised maps integrated withdemographics and data on market potential. This helped us plan optimised service networksfor covering potential villages in the identified districts.
To facilitate direct contact with the markets, a dedicated rural sales team was set upwith field staff chosen from the villages so that they are familiar with the terrain,understand the local sensitivities and are more comfortable working in the rural setting.
To incubate demand for categories with less penetration, Dabur embarked on a variety ofinitiatives at the village level. Consumer insight research indicated that rural customerswere seeking quality-value messages that stress functionality and so brand messages neededto address people.
Dabur activated consumer engagement programmes across Haats and Melas to provideconsumers with the opportunity to touch, feel and experience Dabur products. The companyset up a stall and a mobile van during the Kumbh Mela showcasing its popular products. Thecompany also worked with key opinion leaders in the rural ecosystem to generate awarenessand increase penetration in categories such as Chyawanprash and Baby massage oil.
In addition, we operated mobile health camps, offering clinical examination and medicaladvice to the rural populace.
We are glad to concur that in little over a year, Project Double has helped Dabur reachvillages of 3,000-plus population in all priority districts. It has achieved all theaction standards in terms of rural reach, capitalising per capita sales potential andgrowth objectives and has also resulted in a better mix of the portfolio with animprovement in
IT IN SALES
Dabur places enormous focus on efficient IT systems that help release valuable time andenable the sales team to focus on their core activity of selling with greater efficiency.We made substantial investments in Information Technology to achieve three key objectives:
For the channel partners, improve the ease of doing business with Dabur
Improve reliability of processes and enhance data management capability
Provide actionable information to field teams to release time for market andenhance efficiencies
In an industry first, Dabur has armed its foot soldiers with hand-held devices liketablets and PDAs to improve the quality of their market work. Today, stockist salesmen inall large urban markets have been enabled with PDAs, covering more than 65% ofDaburs urban business. This solution provides real-time detailed information onpurchase trends of outlets and prompts salesmen to customise their sales effort basisoutlet type and past purchase trends. The data flows seamlessly into the stockisttransaction package
Drishti which further facilitates billing. ts, solve problems and, most importantly, Inaddition, a comprehensive IT-enabled order capture system has been provided to allstockists. The system proactively alerts the stockists with suggested orders at SKU levelto help them manage the order-booking process by exceptions, releasing valuable time forfocusing in the market. Today, 100% of Daburs domestic business operates on onlineorder management system.
Information systems have also been put in place to address specific needs ofinstitutional sales team as well as information archiving pertaining to Modern Trade. Wehave included freshness of stock as key data captured from the Modern Tradeoutlets. This helps us have a clear line of sight of freshness as well as prompt actionsat outlet level to facilitate better stock rotation.
The year also saw Dabur tap the Doctors community and IT has played a key role inimproving this connect. The pilot detailing teams have been provided with tablets thatfacilitate detailed product information, data on clinical trials, advertisements,manufacturing process and other relevant information in a ready-to-use format to build theconfidence of the Doctors and Vaids prescribing our formulations. The tablets have alsobeen enabled with a facility to capture feedback from medical practitioners.
RETAIL BUSINESS - NEWU
Dabur operates its specialised beauty retail business under the brand NewU.This business is operated under Daburs wholly-owned subsidiary H&B Stores Ltd.The stores merchandise a wide range of beauty care products and are mainly located inpremium high footfall malls. The store count at the end of fiscal 2012-13 stood at 45stores pan India and is spread across not only metros, but tier 2 cities as well. Majorityof the stores are located in the NCR region in some of the most frequented and popularmalls.
The business witnessed sales growth of 41.5% in 2012-13 with stores reporting goodincrease in sales as the product range was enhanced and streamlined. NewU offers a uniqueblend of domestic and international brands with the brand portfolio catering to a vastvariety of colour cosmetics, fragrances, skin care, personal care and beauty and fashionaccessories.
There were new brand introductions in fiscal 2012-13 such as Colorbar Colour cosmetics,LOreal Luxury fragrances- Armani, Ralph Lauren, Yves St Laurent, Palmers and Crme21 etc. The beauty and fashion accessories were enhanced with latest trends/styles.
The Company continued its joint marketing initiatives and in-store activations with topvendor partners such as LOreal, HUL, Philips and Colorbar across stores, whichboosted sales. Some of the highly successful brand activations undertaken include MakeoverMarathons across prominent malls and LOreals Love in Paris. NewUscustomer loyalty program - Advantage U, continues to witness tremendous growth with acount of 5.3 lakh customers and these privileged customers now account for approximately60% of NewUs sales.
At Dabur, we believe that Operations hold the key to gaining a competitive advantage.Dabur believes in continually striving for higher and better levels of quality not just inits products, but also in its operations, without losing sight of its commitments towardsthe environment and communities where it operates. Details of our various environment andcommunity-led initiatives have been provided in the Business Responsibility Reportsection.
A host of initiatives were also taken towards new product and pack introductions,improve safety awareness and quality improvement. Safety is non-negotiable at Dabur. Theyear also saw Dabur undertake a major Supply Chain realignment initiative to plug loss ofsale due to non-delivery of customer orders.
By working across the entire value chain - from sourcing, manufacturing and logisticsthrough to innovation, advertising and promotions and pricing, we can use our scale togain efficiencies, reach new markets and meet our sustainability targets.
During fiscal 2012-13, three Dabur products - Vatika Shampoo, Dabur Almond Hair Oil andRal Diwali Gift Pack (Car Design) - bagged the INDIASTAR award for excellence inpackaging in India.
Dabur today has manufacturing plants spread across 12 locations in India - Baddi(Himachal Pradesh), Pantnagar (Uttaranchal), Sahibabad (Uttar Pradesh), Jammu, Silvassa,Nasik, Alwar, Katni, Narendrapur, Pithampur, Newai (Rajasthan), and Siliguri (WestBengal).
In addition, the Greenfield unit that was established in Baddi last year to manufactureChyawanprash, Toothpaste, Glucose and Odonil, is now fully operational. During the year,the fruit juices facility at Newai was expanded with addition of more lines. A facilitywas set ation from NAFDAC up at Baddi for manufacturing Dabur Almond hair oil.
Various energy conservation techniques have been initiated and successfully implementedacross all domestic manufacturing units. We are now evaluating adopting solar energy forour Corporate Office in Ghaziabad, and two unit clusters in Baddi and Pantnagar. Duringfiscal 2012-13, Dabur bagged the Corporate Green Star Award for 2012 for itsenvironment-focused initiatives and our Baddi unit won the Manufacturing Today Award forExcellence in Innovation.
Localisation has been the cornerstone of our growth and expansion in the overseasmarkets. Accordingly, we have established local manufacturing facilities in our focusmarkets to create a set-up that is closer to consumer clusters. Dabur International hasestablished a state-of-the-art manufacturing unit in Ras Al Khaimah that may utilise theAFTA agreement to cater to the MENA market. Also, we have built a new green fieldplant inEgypt to cater to demand from COMESA. Similarly, the manufacturing facilities at Nigeriawould address the West African region.
Our largest facility is located at RAK (Ras-al Khaimah) in UAE. Besides this we havemanufacturing plants in Egypt, Nigeria, Turkey, Bangladesh and Nepal.
A new facility is coming up in Sri Lanka for manufacturing fruit juices which will becommissioned in the earlier part of fiscal 2013-14. This plant will the Indian marketparticularly catering to South and West India. A new plant is also being set up inBangladesh for manufacture of hair care and oral care products to meet hair local demand.A green field care and skin care products was commissioned in Egypt during the year. Thetoothpaste manufacturing facility in Nigeria was expanded and a new hair creammanufacturing facility was installed in RAK (Ras-al Khaimah).
Our manufacturing facilities received many certifications during fiscal 2012-13. OurRAK factory received GMP ISO 22716 (International Cosmetic Good Manufacturing Practices),Food GMP Certificate as per ISO-22000 Guidelines, EPC-2012 from Ministry of Environmentand water (Consistent Environmental Performance). The facility inNigeriareceivedGMPISO22716, (National Agency for Food and Drug Administration andControl). Jebel Ali facility received HACCP (Hazard Analysis and CriticalControlPoints)certificationfiscal 2012-13.
Dabur takes pride in the fact that our people, organisational culture and values enableus to be decentralised and entrepreneurial. Dabur is committed to creating a transparentorganisation and a highly conducive environment that is focused on people and theircapability, enabling them to deliver superior performance.
At Dabur, we have constantly focused on getting the top talent for our businesses.Human resource development happens through structured approaches for employee engagement,resourcing, performance and compensation management, competency based development, careerand succession planning and organisation building.
We follow a Balanced Scorecard based performance management system that forms thebackbone of this process. Dabur provides growth opportunities for its employees throughjob rotation, cross geography/ function movements etc. These are planned proactively inconsultation with the candidates and their department heads.
Dabur has a structured MT programme - YMDP (Young Manager Development Programme)wherein we hire a set exporting fruit juices to of Management Trainees from premierB-schools and help them grow with the Company. Some of the fresh hires are even givenoverseas exposure. Besides a robust process, Career Development Centre has also been putin place to identify potential candidates under a successor planning programme. We alsoundertake lateral hiring and have seen many people join Dabur in leadership positions frommuch bigger companies and MNCs.
As Dabur expanded its rural footprint to reach out to villages of 3,000 population,this meant adding more "Feet on Street" in these markets. Almost all of thesenew foot soldiers are sons of the soil who are being hired from the local villages anddistricts.
Leadership development is one of the key initiatives of the Company. Fifty of our topleaders have undergone a program called LEAD (Leadership Excellence Achievement at Dabur).This was conducted with the help of a global HR consulting firm. This initiative hashelped us develop a Dabur Leadership Framework for analysing and addressing individual andteam performance development opportunities.
Learning & Development continues to be a key focus area for Dabur. Senior andMiddle Management have attended core programmes at Ivy League institutions like ISB,Kelloggs, and IIMs etc. Besides, training interventions like the DIL Se series for Salesfunction and Brand Sutra for Marketing team was launched for functional training. The DILSe programme currently covers Sales, Finance and Marketing functions.
We have institutionalised a robust rewards and recognition programme that encouragespeople to think out of the box and recognises their efforts through rewards and careergrowth opportunities. Being in a hyper-competitive environment, we demand higher levels ofcommitment from our employees. These programmes help increase employee engagement levelsand create more employee touch points and opportunities to recognise talent, both on aformal and informal basis.
Our rewards programme, christened Applause, seeks to reward employees in variouscategories like the Rising Star (best newcomer), Honours Club (employee of the full year),Trailblazer (employee of the half year) and Eureka (for the best idea generation).Besides, spot awards are also given to recognise employees at any time for demonstrationof actions, which are innovative, save cost, promote team spirit, institute newinitiatives and raise standards of performance.
We have also worked towards e-enablement of our HR Processes like our recruitmentprocess and conducting employee satisfaction surveys. We launched an e-enabled platformcalled D.O.S.T. (Dabur Online Portal for Sales Test) to help us assess potential salestrainees to be hired on Dabur rolls. We have developed an Employee Satisfaction Surveycalled M.E.E.T (Monitoring Employee Engagement and Teamwork) to gauge satisfaction levelsin our Field Staff sales team.
As an organisation, Dabur is also consciously working towards increasing the diversityof its leadership group, making conscious efforts to build an inclusive workplace thatpromotes cultural agility, global mindset and diversity of experience and thoughts.Towards this end, your Company has seen a growing number of women joining the workforcethrough targeted hiring at B-School campuses and lateral recruitment. Keeping this inmind, we celebrated International Womens Day at Dabur. Dabur hosted a special selfdefence training session for all its women employees, giving them a crash course in basicKrav Maga, a self-defence system developed in Israel.
We are proud to announce that your Company continues to maintain its record onindustrial relations without any interruption in work. As on March 31, 2013, the Companyhad 6,154 employees on its rolls all across the globe.
RESEARCH & DEVELOPMENT
At Dabur, we believe that developing superior products does not just drive volumegrowth, but also goes a long way in commanding price advantage, thereby ensuringprofitable growth for the organisation. In fiscal 2012-13, Dabur took important steps tostrengthen its R&D setup, while focusing on four key objectives: product quality andsafety, new product development, superior consumer satisfaction and reduced costs.
During the year, Dabur Research & Development Centre (DRDC) obtained the DSIR(Department Scientific & of Industrial Research) recognition. It filed for two patentsand got 6 publications from DRDC. We are proud to state that Dabur has achieved 100% APIcompliance status for its raw materials. This means that all the 247 herbs used by Daburcomply with the Ayurvedic Pharmacopoeia standards.
We have more than 100 scientists and chemists working at our technology centre whoconduct R&D in the fields of Ayurveda, personal care, home care and foods. Entireinnovation programme within India and outside is driven by DRDC. In addition local R&Dis also conducted by Hobi Group and Namaste Laboratories LLC in their product portfolio.
FINANCIAL REVIEW (ON A CONSOLIDATED BASIS)
al 2012-13 as During fiscal 2012-13, net sales increased by 16.3% to Rs. 6,146.4 croreslargely driven by strong volume growths in our Domestic FMCG and organic InternationalBusiness.
Though inflationary 2012-13, we effected calibrated price increases and this combinedwith mix impact led to a decline in material costs to 49.1% in 2011-12. We enhancedinvestments in our brands and this was reflected in Advertisement & Publicityexpenditure as %ofsalesincreasingto13.6%in to 12.5% in fiscal 2011-12. Overall, there wasan uptick in EBITDA margins which increased to 18.3% in fiscal 2012-13 as compared to17.9% in fiscal 2011-12 and Profit After Tax (PAT) increased by 18.4% to Rs. 764.3 croresin headwinds continued during fiscal 2012-13.fiscal Fig. 10 provides a summary ofP&L statement.
FIG 10: P&L STATEMENT SUMMARY (CONSOLIDATED)
|In Rs. crores ||FY 2011-12 ||FY 2012-13 ||YoY (%) |
|Net Sales ||5,283.2 ||6,146.4 ||16.3% |
|Other Operating Income ||22.2 ||29.7 ||33.7% |
|Material Cost ||2,692.4 ||3,019.3 ||12.1% |
|Employee Benefit Expense ||387.4 ||471.2 ||21.6% |
|Advertisement & Publicity ||659.5 ||837.0 ||26.9% |
|Other Expenses ||675.9 ||818.8 ||21.1% |
|Other Non Operating Income ||57.4 ||94.5 ||64.6% |
|EBITDA ||947.6 ||1,124.3 ||18.7% |
|% of Sales ||17.9% ||18.3% || |
|Finance Costs ||53.8 ||58.9 ||9.4% |
|Depreciation & Amortisation ||103.2 ||112.4 ||8.9% |
|Profit Before Tax (PBT) ||790.5 ||953.0 ||20.6% |
|Exceptional Item ||0.0 ||-4.7 || |
|Tax Expenses ||146.4 ||182.6 ||24.8% |
|Profit After Tax (PAT) - before extraordinary item ||644.1 ||765.7 ||18.9% |
|Extraordinary Item ||0.0 ||0.1 || |
|PAT (After extraordinary Items) ||644.1 ||765.8 ||18.9% |
|Minority Interest - Profit/(Loss) ||-0.8 ||2.4 || |
|PAT (After Extraordinary item & Minority Interest) ||644.9 ||763.4 ||18.4% |
|% of Sales ||12.2% ||12.4% || |
During fiscal 2012-13, the net working capital of the Company improved to 18 days ofsales as compared to 25 days in 2011-12. There were improvements in inventory andreceivables management, which were reflected in reduction in both Inventory Days and DaysSales Outstanding (DSO).
|FIG 11: WORKING CAPITAL || || |
|as days sales ||FY 2011-12 ||FY 2012-13 |
|Days Sales Outstanding (DSO) ||32 ||29 |
|Inventory Days ||57 ||50 |
|Days Payable Outstanding (DPO) ||33 ||44 |
|Net Working Capital (no. of days of sales) ||25 ||18 |
Note: In above figure, Net Working Capital = Current Assets (excl. Cash and currentInvestments) less Current Liabilities (excl. Short Term Borrowings)
In terms of return ratios, ROIC (Return on Invested Capital) increased to 38.1% infiscal 2012-13 as compared to 34.0% in fiscal 2011-12. Return on Equity (ROE) was at 36%in fiscal 2012-13.
|FIG 12: RETURN RATIOS || || |
|Ratio ||FY12 ||FY13 |
|ROIC (Return on Invested Capital) ||34.0% ||38.1% |
|ROE (Return on Equity) ||37.6% ||36.0% |
The Company incurred Capital Expenditure of Rs. 234.8 crores during the fiscal 2012-13which was invested in expansion of manufacturing capacities in India, Bangladesh, SriLanka, Egypt and Nepal and regular maintenance expenditure. Fixed Asset Turnover ratioshave been stable in fiscal 2012-13.
FIG 13: FIXED ASSET TURNOVER
|Ratio ||FY2011-12 ||FY 2012-13 |
|Fixed Asset Turnover ||6.0x ||5.8x |
Note: Fixed Asset above excludes Goodwill
The total dividend for the year has been at 150% of par value. Including Corporate Taxon Dividends, this translates into a payout ratio of 52% of standalone net profit forfiscal 2012-13.
OPPORTUNITIES AND THREATS
Rural India offers long term growth opportunities and our initiatives to increase ourdirect coverage are a step towards exploiting these opportunities. In addition, we areplanning to leverage our brands, deep understanding of consumer behaviour and robustdistribution network for new offerings within Health Care, HPC and Foods categories. Interms of threats, the key threats are volatility in exchange rates and inflation in inputcosts.
Going ahead, macro-economic headwinds and heightened competitive intensitynotwithstanding, we would strive to continue to drive profitable growth on the back ofenhanced distribution, innovative marketing mix and new initiatives across categories andbusinesses.
INTERNAL CONTROL SYSTEMS
The Company has a well-placed, proper and adequate internal control system, whichensures that all assets are safeguarded and protected and that the transactions areauthorised, recorded and reported correctly. The Companys internal control systemcomprises audit and compliance by in-house Internal Audit Division, supplemented byinternal audit checks from PricewaterhouseCoopers Private Limited, the Internal Auditorsand various transaction auditors. The
Internal Auditors independently evaluate the adequacy of internal controls andconcurrently audit the majority of the transactions in value terms. Independence of theaudit and compliance is ensured by direct reporting of Internal Audit Division andInternal Auditors to the Audit Committee of the Board.
To further strengthen the internal control process, the Company has developed a verycomprehensive legal compliance manual called Rs.e-nForceRs., which drillsdown from the CEO to the executive level person who is responsible for compliance. Thisprocess is fully automated and generates alerts for proper and timely compliance. To readthe report of the Audit Committee on internal control and adequacy, refer to the sectionon Corporate Governance of the Annual Report.
Dabur, like any other enterprise having national as well global business interests, isexposed to business risks which may be internal as well as external. Key risks faced bythe company include, macro-economic slowdown which can put pressure on disposable incomes,persistently high inflationary trends, unfavourable exchange rate and any unexpectedchanges in regulatory framework. To ensure our long-term corporate success, it istherefore essential that risks be effectively then mitigated by means of appropriatecontrol measures. We have a comprehensive risk management system in place, which enablesus to recognise and analyse risks early and to take the appropriate action.
This system is implemented as an integral part of our business processes across theentire Dabur operations and includes recording, monitoring, and controlling internalenterprise business risks and addressing them through informed and objective strategies.
Some of the key risks faced by the Company in todays scenario are exchange ratevolatility and continued inflationary trend which is not only increasing cost pressures,but may also lead to demand compression for FMCG products. Increase of imitation/ fakeproducts and brands can hamper our growth. Any unexpected changes in regulatory frameworkpertaining to fiscal benefits of our business or profitability Company. A slowdown inoverall economic growth can lead to pressure on disposable incomes and spending power ofpeople.
The Company is well aware of these risks and challenges and has put in place mechanismsto ensure that they are managed and mitigated with adequate timely actions.
Statements in this Management Discussion and Analysis describing the Dabursobjectives, projections, estimates and expectations may be forward lookingstatements within the meaning of applicable laws and regulations. Actual results maydiffer substantially or materially from those expressed or implied.
Important developments that could affect the Companys operations include adownward trend in the FMCG industry, rise in input costs, exchange rate fluctuations andsignificant changes in political and economic environment, environment standards, taxlaws, litigation and labour relations.