Dabur India Ltd.

A Report on Financial Management

Submitted to: Prof. Prakash Singh

Submitted by: Aditya Bisen Ankit Godha Aseem Sen Gupta Ashutosh Agarwal M. Yugandhar PGP24237 PGP24243 PGP24248 PGP24249 PGP 24260

Contents

TABLE OF FIGURES...................................................................................................... 3 Introduction................................................................................................................. 5 Credit rating of the company....................................................................................7 Industry................................................................................................................... 8 Major Competitors....................................................................................................9 ................................................................................................................................10 Results at glance (Year on Year)................................................................................11 Working capital......................................................................................................... 14 Working capital investment (across the industry)......................................................15 Working capital by sales.........................................................................................16 Non cash working capital by sales........................................................................17 Cash Management.................................................................................................... 18 Cash to Total Assets Ratio......................................................................................18 Cash to Revenue Ratio...........................................................................................19 Cash by sales ratio.................................................................................................20 Similar to cash to revenue ratio, cash to sales ratio is higher than the industry average as well as well above than the peer companies. There seems to be a huge rise in the year 2005 in terms of cash by sales ratio. The acquisition of Balsara in the year 2005 may had led to increase in cash requirement to be able to meet the daily operation of the combined entity. However the higher ratio than the industry average shows that Dabur is not able to maintain its cash as efficiently as the industry and its peer are doing...............................................................................21 Cash to Firm Value Ratio........................................................................................21 Inventory................................................................................................................... 22 Inventory to Sales Ratio ........................................................................................22 Inventory to Enterprise Value Ratio .......................................................................23 2

Number of days Sales in Inventory ........................................................................25 Inventory to Current Assets Ratio ..........................................................................26 Account Receivable...................................................................................................28 Account receivables and sales ratio.......................................................................28 Accounts Receivable/ Enterprise Value...................................................................30 Account Payables...................................................................................................... 31 Account Payables to Sales Ratio.............................................................................31 No. of days sales in Accounts Payables .................................................................32 Operating cycle and cash cycle.................................................................................34 References................................................................................................................ 36

TABLE OF FIGURES
Figure 1: Working Capital..........................................................................................14 Figure 2: Net Profit....................................................................................................15 Figure 3: Working Capital by Sales ratio....................................................................16 Figure 4: Non-Cash Working Capital by Sales ratio....................................................17 Figure 5: Cash to Total Assets ratio...........................................................................18 Figure 6: Cash to Revenue ratio................................................................................19 Figure 7: Cash by Sales ratio.....................................................................................21 Figure 8: Cash to Firm Value ratio.............................................................................21 Figure 9: Comparison of Inventory to Sales Ratio......................................................23 Figure 10: Comparison of Inventory to Enterprise Value Ratio...................................25 Figure 11: Comparison of No. of days sales in inventory............................................26 Figure 12: Comparison of No. of days Sales in inventory...........................................27 Figure 13: Accounts Receivables to Sales ratio..........................................................29 Figure 14: No of Days Sales in Accounts Receivables................................................29 Figure 15: Accounts Receivables to Enterprise Value ratio........................................30 3

Figure 16: Accounts Payables to Sales ratio...............................................................32 Figure 17: No of Days Sales in Accounts Payables ratio.............................................33

Introduction
The story of Dabur began with a visionary endeavor by Dr S.K. Burman to provide effective and affordable natural cures for the killer diseases of those days like cholera, malaria and plague for ordinary people in far-flung villages in Bengal. Soon Daktar (Doctor) Burman became popular for his effective cures, and that is how his venture Dabur got its namederived from the Devanagri rendition of Daktar Burman. Dr. Burman set up Dabur in 1884 to produce and dispense Ayurvedic medicines, with the vision of good health for all. More than a century later, by 1990s Dabur had grown manifold. Over the years, the family has understood the need for incorporating a professional management team that would be able to launch Dabur onto a high growth path in the emerging competitive environment. Therefore, in 1998, the Burman family started handing over the management of the company to professionals and down-scaled its direct involvement in day-today operations. In 2003, with the approval of the Delhi High Court, the company demerged its pharmaceutical business to a new company, Dabur Pharma Limited, to unlock value in both pharma & FMCG business. As a result, the entire pharma business was transferred to the said company. By 2005, Dabur India had emerged as a leading nature-based health and family care products company with eight manufacturing units, 5,000 distributors and over 1.5 million retail outlets spread all over India and abroad. Dabur crossed a turnover of line of activity. Its main product lines include: Hair-care: Vatika, Dabur Amla Hair Oil Health supplements: Glocose-D, Dabur Honey, Chyawanprash, Real Digestives and confectionaries: Hajmola, Anardana Churan Oral care: Dabur Lal Dant Manjan, Dabur Red Toothpaste Baby and skin care: Dabur Tel, Gulabari Rs 1, 000 crores in year 200001, and further Rs 1,300 crore in 200405; thereby establishing its market leadership in its

Dabur is one of Indias largest FMCG companies, specializing in natural health care, personal care, and food products. It has well-established brands in niche categories such as Dabur Chyawanprash (63 per cent market share in the chyawanprash segment), Dabur Lal Danth Manjan (29 per cent
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market share in the herbal tooth powder segment), and herbal hair oil products Vatika and Anmol (33 per cent market share in the hair oil market other than pure coconut oil). The acquisition of the Balsara units has further improved Daburs market position in the oral care segment. Dabur is one of the largest producers of ayurvedic drugs in India, a niche segment marked by the presence of a few national and numerous unorganized players. Dabur achieved 9.2 per cent growth in ayurvedic drugs in 2006-07, well above the industry average of around 5 per cent, through new initiatives such as the launch of over-the-counter (OTC) brands and variants, opening of Dabur Vaid centres, and organizing health camps and vaid meet. Dabur is leveraging on its strong positioning based on the herbal and natural platform to expand into other large segments, such as soaps and shampoos, in the FMCG industry. The growing popularity of herbal and natural products has led to other established FMCG players launching products in these segments. Dabur is expected to face stiff competition in these categories, before it can gain meaningful market shares in them. Dabur operates through three business lines in India: the consumer care division, comprising FMCG products; the consumer health division, comprising traditional ayurvedic products; and the foods division In 2003-04, Dabur transferred its pharmaceutical business to Dabur Pharma Ltd. Dabur acquired three companies of the Balsara group for Rs.1.43 billion in January 2005 along with brands Promise, Babool and Meswak (in oral care); and Odomos, Odonil and Odopic (in home care). For 2006-07, Dabur reported a consolidated profit after tax (PAT) of Rs.2.81 billion on net sales of Rs.20.41 billion, as against a PAT of Rs.2.08 billion on net sales of 17.23 billion in 2005-06. For the nine months ended December 31, 2007, Dabur reported a consolidated PAT of Rs.2.5 billion on net sales of Rs.17.55 billion, vis--vis a PAT of Rs.2.04 billion on net sales of Rs.15.12 billion for the corresponding period, the previous year.

Credit rating of the company

CRISIL AA+ and P1+ for DABUR INDIAs bank facilities

Rs. 1000 Million Long Term Bank Facilities1 Rs. 325 Million Short Term Bank Facilities2 Rs.200 Million Non-Convertible Debenture Programme Fixed Deposit Programme Rs.600 Million Commercial Paper Programme

AA+/Positive(Assigned) P1+(Assigned) AA+/Positive(Reaffirmed) FAAA/Stable(Reaffirmed) P1+(Reaffirmed)

1 Interchangeable between Cash Credit, Cash Credit (Book Debt), Drawee Bill, Packing Credit, Bill Discounting and Post Shipment Credit. 2 Interchangeable between Letter of Credit and Bank guarantees.

CRISILs ratings on Dabur India Ltds (Daburs) debt programmes reflect the companys healthy and improving financial profile, strong market position in the niche ayurvedic and herbal fast
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moving consumer goods (FMCG) segments with a diversified product portfolio, and strong national presence in generic ayurvedic products. These rating strengths are partially offset by the increasing competition in the herbal /natural consumer goods industry. Daburs healthy financial risk profile is marked by consistent growth in profitability, steady cash generation, robust capital structure, high returns on capital employed (RoCE), and favorable debt protection measures. Daburs operating margins have improved to 17 per cent in 2006-07 (refers to financial year, April 1 to March 31) from 13.7 per cent in 2003-04. The benefits of improved profitability also reflect in a RoCE of 50 per cent in 2006-07, Daburs highest RoCE level in the past decade. The company enjoys healthy debt protection measures: as on March 31 2007, its interest coverage and net cash accrual to total debt ratios were comfortable at 23.9 times and 1.1 times, respectively. Outlook: Positive CRISIL expects that Daburs healthy financial profile will continue to improve, and that the company will sustain its strong market position in the consumer care, consumer healthcare, and foods businesses. The rating may be upgraded if Dabur sustains its robust capital structure, and achieves growth rates that are higher than those of the industry through organic and inorganic strategies. Conversely, the outlook may be revised to Stable if the company takes on any large debt-funded capital expenditure programme or acquisition, thus significantly impacting its financial risk profile.

Industry
The Indian FMCG sector is the fourth largest in the economy. At present, urban India accounts for 66% of total FMCG consumption, with rural India accounts for the remaining 34%. However, rural India accounts for more than 40% of the consumption in major FMCG categories such as personal care, fabric care and hot beverages. FMCG companies cannot overlook these households as they account for 12.2% of the worlds population. Around 70 % of the total households in India (188 million) reside in the rural areas. The total numbers of rural households are expected to rise from 135 mn in 2001- 02 to 153 mn in 2009 - 10. This presents the largest potential market in the world. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US$11.6 billion
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in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care and shampoos, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge. Lower and middle-income groups account for over 60% of the total FMCG sales. Rural markets account for 56% of the total domestic FMCG demand. Low-priced products are driving the sales volume in FMCG. Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality, the sector meets the everyday needs of the masses. FMCG companies are fighting to stand out amid the clutter of a massively vigorous and strengthening consumer market. To keep consumers interested, India's brands are diversifying well-loved favorites by entering new FMCG territory where margin are good and rising the product price to beat the margin pressure. Nevertheless, the FMCG growth story is here to stay. According to a survey on fast moving consumer goods (FMCG) industry undertaken by Federation of Indian Chambers of Commerce and Industry (FICCI), the growth momentum is likely to continue in the current fiscal as well, spurred by lifestyle category goods. It includes products categories like skin care, shampoos, deodorants, anti-aging solutions, fairness products and various men's products. The FMCG sector resorted to hike in product prices, tinkering of pack size etc to tackle the spike in commodity prices. But these gains were largely held despite the softening of commodity prices. Meanwhile, the demand growth remains strong both in the urban and rural areas. Lower input prices, better product prices and improved demand together should enable the FMCG sector to report better numbers in the quarter ending September 2008.

Major Competitors
Emami In the seventies, Kolkata based industrialists R S Agarwal and R S Goenka was jointly promoted the business of Himani Ltd. Over the last three decades, Himani has not only emerged as a leading player in the field of personal and health care products in India and also changed its name as Emami Ltd. Toiletries, Medicines and Food products are the main Products of the company. The
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company is headquartered in Kolkata and has offices across 27 Indian cities. Emami has also markets its products in over 30 countries. Marico Marico Limited (ML), a leading FMCG player was incorporated on 13th October 1988 under the name of Marico Foods Limited. Mario's Products and Services in Hair Care, Skin Care and Healthy Foods reach out to more than 20 countries in the Middle East, Asian sub-continent, Australia and USA. With a extensive distribution network of more than 2.5 Million outlets in India and overseas, the company markets well-known brands such as Parachute, Saffola, Kaya, Sundari and Fiancee to name few, most of which enjoy leadership positions with significant market shares in respective categories. Godrej Godrej Consumer Products (GCPL) is a major player in the Indian FMCG market with leadership in personal, hair, household and fabric care segments. Promoted by Godrej & Boyce Manufacturing Company, GCPL was formed in November 2000 to take over the consumer products division of Godrej Soaps pursuant to a scheme of demerger which was effective from 1st April, 2001. The company is ranked as seventh in the list of Top-25 companies. The company is among the largest marketer of toilet soaps in the country with leading brands such as Cinthol, Fairglow, Nikhar, & Allcare brand. GCPL is also the leader in the hair colour category in India and has a vast product range.

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Results at glance (Year on Year)

Equity Paid Up Net worth Capital Employed Gross Block Net Working Capital ( Incl. Def. Tax) Current Assets ( Incl. Def. Tax) Current Liabilities and Provisions ( Incl. Def. Tax) Total Assets/Liabilities (excluding Revaluation & Writeoff) Gross Sales Net Sales Other Income Value Of Output Cost of Production Selling Cost PBIDT PBDT PBIT PBT PAT Book Value (Unit Curr) Market Capitalisation EPS (annualised) (Unit Curr) Dividend (annualised%) Payout (%) Cash Flow From Operating 2008 03 86.4 528.3 2 545.6 6 467.9 4 -33.09 576.8 2 609.9 1 1141. 6 2117. 8 2083. 4 29.36 2086. 4 1256. 8 336.3 4 400.9 1 390.9 2 375.1 6 365.1 7 316.7 7 6.11 9495. 4 3.41 150 43.97 313.2 11 2007 03 86.29 403.1 9 423.2 7 404.3 19.06 397.7 8 378.7 2 782.1 7 1637. 4 1600. 4 19.31 1622. 6 970.0 2 261.0 7 313.0 1 306.2 291.0 3 284.2 2 252.0 8 4.67 8193. 2 2.72 175 51.98 230.6 2006 03 57.33 447.8 7 468.4 4 328.2 3 -38.35 285.6 8 324.0 3 759.6 1369. 7 1342. 8 22.34 1338. 6 725.9 1 204.7 3 239.6 4 233.9 1 220.5 9 214.8 6 189.0 8 7.81 7106. 1 3.05 250 57.32 194.3 2005 03 28.64 338.0 7 386.7 317.4 6 -81.66 253.3 5 335.0 1 715.9 1268. 7 1226. 2 11.97 1234. 2 687.0 3 217.0 4 186.7 7 182.1 1 169.6 7 165.0 1 148.0 1 11.8 3179 4.83 250 51.79 206.9 2004 03 28.62 268.6 5 308.4 6 268.1 6 -24.3 219.8 9 244.1 9 546.0 6 1148 1082. 6 11.73 1056. 8 612.3 7 199.5 4 136.7 7 129.1 9 121.0 2 113.4 4 101.2 9.39 2251. 8 3.28 200 60.99 198.5

Activities Cash Flow From Investing Activities Cash Flow From Financing Activities

9 179.7 7 -119.3

-60.57 164.2 3 (%) -9.98 -9.64 23.18 19.54 19.19 36.53 2.97 30.62 30.91 31.93 32.28 33.32 15.3

4 -27.51 139.4 4 32.48 21.14 3.39 7.96 9.51 6.72 6.1 28.31 28.44 30.01 30.21 27.75 123.5 3 0.09 0.06 0.79 4.24 11.24 35.94 38.5 54.04 48.12 13 46

9 147.8 5 -60.38

5 140.1 6 -67.45

Rate of Growth ROG-Net Worth (%) 31.04 ROG-Capital Employed (%) 28.92 ROG-Gross Block (%) 15.74 ROG-Gross Sales (%) 29.34 ROG-Net Sales (%) 30.18 ROG-Cost of Production (%) 28.38 ROG-Total Assets (%) 45.96 ROG-PBIDT (%) 28.08 ROG-PBDT (%) 27.67 ROG-PBIT (%) 28.91 ROG-PBT (%) 28.48 ROG-PAT (%) 25.66 ROG-Market Capitalisation (%) 15.89

25.84 25.36 18.38 10.52 13.27 14.38 31.1 36.56 40.96 40.2 45.46 46.25 41.18

-34.65 -40.81 -9.77 -6.84 -6.59 -10.19 -25.69 0.58 9.87 6.21 18.74 19.17 119.4 6 0.22 0.17 1.27 4.06 7.97 14.46 15.97 29.5 29.78 19 41

Key Ratios Debt-Equity Ratio 0.04 0.05 Long Term Debt-Equity Ratio 0.04 0.05 Current Ratio 0.99 0.97 Turnover Ratios Fixed Assets Ratio 4.86 4.47 Inventory Ratio 11.81 12 Debtors Ratio 26.24 37.25 Interest Cover Ratio 37.55 42.74 ROCE (%) 80.23 69.37 RONW (%) 68.01 59.24 Debtors Velocity (Days) 14 11 Creditors Velocity (Days) 52 46

0.15 0.11 0.79 4.33 10.68 27.78 36.41 49.7 48.79 12 43

The increase in ROCE is particularly noteworthy, as it has happened on the back of addition of fixed assets to the tune of Rs. 124 crore across Dabur operations in India and abroad. While much of this has been due to higher profits, this also reflects the companys strong cash position. In a year of investments, DIL has actually reduced its consolidated debt outstanding from Rs. 159.9 crore at the end of 2006-07 to Rs. 99.2 crore at the end of 2007-08. In addition, the company has
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further tightened its working capital management - net working capital was reduced to 6 days of sales in 2007-08 compared to 22 days in 2007-08 on like to like basis, after adjusting for dividend which was paid in March last year.

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Working capital
Dabur has a negative working capital of -29.82 crores as on March 2008. As can be seen from the graph there was an upswing followed by a downswing in both the working capital and the noncash working capital. The table below shows the major component of the current asset for Dabur from the year 2004-2008.
2008 Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets 201.15 100.46 68.26 182.94 552.81 2007 157.37 60.98 50.25 127.81 396.41 2006 115.61 26.94 38.04 103.77 284.36 2005 128.03 49.28 10.65 64.01 251.97 2004 109.52 42.07 11.89 55.84 219.32

Current Liabilities Provisions Total Current Liabilities

317.22 265.41 582.63

277.7 78.38 356.08

193.42 113.89 307.31

238.38 83.85 322.23

164.52 71.7 236.22

Table 1: Current Assets and Current Liabilities

60

40

20

0 2003 Rs in cr -20

2004

2005

2006

2007

2008

2009

W orking capital Non cash working capital -40

-60

-80

-100

-120 Year

FIGURE 1: WORKING CAPITAL

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Negative working capital The current liability of the Dabur exceeds its current asset which does indicate that company may face a short term solvency problem. At the same time company is showing high growth in profitability. Figure below shows the profitability of the company for last five years.
Net profit
350

300

250 Profit (in Cr)

200 profit 150

100

50

0 2003

2004

2005

2006 year

2007

2008

2009

FIGURE 2: NET PROFIT

Company reported a profit of 316 crore in 2008 with the growth of 25.6% as compared to 2007. The company has an impressive market share in its product line and is the fourth largest FMCG company in India. What can be inferred is that in order to provide finance for expansion and diversification projects, a company have cut down on inventories, reduce the credit period to customers while at the same time seek extended credit facilities from its suppliers of raw materials, other goods and services. Also, it tried to manage with as little cash in hand as possible. As a result, the current assets represented by inventories, debtors and cash would be reduced and current liabilities represented by creditors would increase resulting in negative working capital.

Working capital investment (across the industry)

In this section, we will discuss working capital investments of Dabur and will compare it with other firms in the same industry. We will also compare the financial details of the firm with Industry average.

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Working capital by sales

The table below represents the working capital to sales ratio of Dabur India ltd. and other firms in the same peer group from year 2004 to 2008. The table also contains information about the industry average.
2008 Industry Dabur Marico Emami Godrej 0.06 2007 0.03 2006 0.10 2005 0.10 2004 0.10

-0.01
0.05 0.23

0.03
0.01 0.19

-0.02
0.03 0.27

-0.06
0.04 0.38

-0.02
0.02 0.40

4.99 18.98 8.07 10.26 18.24 Table 3: Working Capital by Sales ratio
Working capital and sales ratio

0.5

0.4

0.3 Industry Dabur Marico Emami Godrej

Ratio

0.2

0.1

0 2003 -0.1

2004

2005

2006

2007

2008

2009

year

FIGURE 3: WORKING CAPITAL BY SALES RATIO

Dabur have one of the lowest working capital by sales ratio as compared to the industry (in fact the ratio is negative for Dabur). This means that Dabur is utilizing its capital fully and not blocking it in working capital. However working capital also contain a cash which is not available and not tied up hence a better ratio for analysis would be non-cash working capital by sales.

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Non cash working capital by sales

The table below represents the non cash working capital to sales ratio of Dabur India ltd. and other firms in the same peer group from year 2004 to 2008. The table also contains information about the industry average.
2008 Industry Dabur Marico Emami Godrej 0.040928 -0.04708 0.040552 0.226705 -0.03643 2007 0.005606 -0.0062 0.00472 0.15421 -0.06559 2006 0.080154 -0.04542 0.027478 0.264657 -0.08537 2005 0.084332 -0.06598 0.033141 0.381599 -0.08259 2004 0.074462 -0.02659 0.016113 0.394531 -0.08905

Table 4: Non-Cash Working Capital by Sales ratio

Non-cash working capital and sales ratio
0.5

0.4

0.3 Industry Dabur Marico Emami Godrej

0.2 Ratio 0.1 0 2003 -0.1

2004

2005

2006

2007

2008

2009

-0.2 year

FIGURE 4: NON-CASH WORKING CAPITAL BY SALES RATIO

Here again Dabur have a negative non-cash working capital hence have a lowest ratio among its peer group. This is the capital which is actually tied up and not available (after removing cash), its negative value indicate that that Dabur have done good job in terms of releasing the capital blocked in working capital but again buts itself in risky position in terms of meeting its short term liabilities.

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Cash Management
The figures provided are over 5 years. One notices sudden changes in figures of across the heads offered in the years 2003-04 and 2005-06. The cash figures Dabur see an abrupt drop in the 200304. This can be attributed to the de-merger of Dabur Pharma from Dabur India ltd. Its acquisition of Balsara Hygiene and Home Care business in 2005 explains the change in cash figures for that period as Dabur would now have greater cash requirements to sustain its working capital cycle.

Cash to Total Assets Ratio

Dabur 2008 2007 2006 2005 2004 Industry 0.0693 0.0866 0.0465 0.0299 0.0608 Marico 0.0511 0.0707 0.0561 0.0630 0.1250 Godrej 0.0696 0.0971 0.1695 0.1602 0.2097 Emami 0.0086 0.0723 0.0022 0.0010 0.0014

0.125 1 0.118 7 0.081 2 0.027 5 0.038 5

Table 5: Cash to Total Assets ratio

FIGURE 5: CASH TO TOTAL ASSETS RATIO

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The Cash to Total Assets Ratio reflects the amount of cash that the business can generate with respect to its overall size. This becomes a very important tool when analyzing a companys profitability. A company may be profitable, but if it doesnt have enough cash on hand to pay its bills, then it is in trouble. By and large, Dabur follows industry trends, the relevant ratio moves with the industry. However, upon doing a peer group analysis, we find that the cash to total assets ratio is amongst the highest implying poor cash management.

Cash to Revenue Ratio

Dabur 2008 Industry 0.0230 Marico 0.0188 Godrej 0.0214 Emami 0.0046

0.031 8 0.030 3 0.027 3 0.008 3 0.010 3

2007

0.0245

0.0155

0.0234

0.0303

2006

0.0225

0.0176

0.0148

0.0013

2005

0.0131

0.0112

0.0097

0.0006

2004

0.0241

0.0148

0.0150

0.0008

Table 6: Cash to Revenue ratio

FIGURE 6: CASH TO REVENUE RATIO

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The cash to revenue ratio for a company indicates the effectiveness of the firm's credit and collection policies, and the amount of cash required as buffer for unexpected delays in cash collection. In short, it reflects the companys ability to convert sales into cash. It would be worrisome to see a company's sales grow without a parallel growth in operating cash flow. Positive and negative changes in a company's terms of sale and/or the collection experience of its accounts receivable will show up in this indicator. The sudden rise in this ratio following 2005 again is for the same reason as mentioned before, the Balsara acquisition. Overall, the general movement is in line with the industry, but exceeding industry average in the past few years.

Cash by sales ratio

The table below represents the Cash to sales ratio of Dabur India ltd. and other firms in the same peer group from year 2004 to 2008. The table also contains information about the industry average.
2008 Industry Dabur Marico Emami Godrej 0.02 0.03 0.01 0.00 2007 0.02 0.03 0.01 0.04 2006 0.02 0.03 0.01 0.00 2005 0.01 0.01 0.00 0.00 2004 0.02 0.01 0.01 0.00 0.03

0.02 0.03 0.02 0.02 Table 7: Cash by Sales ratio

Cash by sales ratio

0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 2003 -0.005 year Industry Dabur Marico Emami Godrej

Ratio

2004

2005

2006

2007

2008

2009

20

FIGURE 7: CASH BY SALES RATIO

Similar to cash to revenue ratio, cash to sales ratio is higher than the industry average as well as well above than the peer companies. There seems to be a huge rise in the year 2005 in terms of cash by sales ratio. The acquisition of Balsara in the year 2005 may had led to increase in cash requirement to be able to meet the daily operation of the combined entity. However the higher ratio than the industry average shows that Dabur is not able to maintain its cash as efficiently as the industry and its peer are doing.

Cash to Firm Value Ratio

Dabur 2008 2007 2006 2005 2004 0.007 0.006 0.005 0.003 Industry 0.006 0.007 0.005 0.005 Marico 0.007 0.006 0.006 0.004 Godrej 0.006 0.007 0.004 0.003 Emami 0.002 0.010 0.000 0.000 0.000

0.005 0.012 0.005 0.004 Table 8: Cash to Firm Value ratio

FIGURE 8: CASH TO FIRM VALUE RATIO

We have taken firm value to be the same as enterprise value as it too is a measure of the company's value. Enterprise Value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. The inverse of this ratio is generally used as a valuation multiple. Here we see that the Cash to Firm value ratio, with the exception of Emami, is
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almost the same as its peers and the industry in general. There exist no sudden changes in this ratio except the one in 2005. Thus we see, that in general cash ratios for Dabur follow industry averages with the exception of the disruption on account of the Balsara acquisition in 2005.

Inventory
Given the large variety of products that are manufactured and marketed, and hundreds of different raw materials used by the company, accurate forecasting of inventory is very important for effective working capital management. A wrong forecast can lead to piles of inventory, thus blocking unnecessary investment and increasing storage cost. After the new management took over, an inventory management system was instituted involving all related departments like procurement, finance, manufacturing, sales and supply chain. As far as possible, the company procures materials following the Just-in-Time (JIT) approach. However, JIT inventory system is not applicable for all inputs. Many of its inputs are agricultural products that are available at cheaper prices seasonally when fresh crops arrive into the market. If the annual requirement of raw materials is not purchased during this period, the company may have to pay much higher prices later. As a result, the company must procure such raw materials within the period of their seasonal abundance and preserve them for later use. This could be one possible reason for Inventory being a high proportion of the Current Assets.

Inventory to Sales Ratio

The table below represents the Inventory to Sales ratio of Dabur India Ltd and other firms in the same peer group from year 2004 to 2008. The table also contains information about the industry average.
Inventory/ Sales 200 8 Dabur Industry Emami Godrej Consumer 0.097 0.120 0.068 0.180 200 7 0.098 0.114 0.079 0.147 200 6 0.086 0.154 0.119 0.127 200 5 0.104 0.140 0.163 0.122 200 4 0.101 0.118 0.139 0.090

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Marico

0.139

0.143

0.114

0.119

0.111

Table 9: Inventory to Sales Ratio - Peer Group Analysis

The Figure shows that, the inventory to sales ratio of the firm is below the industry average in all the years from 2004 to 2008. The ratio of Dabur is below that of the competitors during 2004 to 2008, except for Emami in the years 2007 and 2008. Also, there is not much variation in the inventory to sales ratio for the firm and from 2004 to 2008. Better inventory management might have helped Dabur India Ltd to maintain lesser inventory than its competitors. Hence its ratio of Inventory to Sales is lesser than that of the industry average. This is good for the firm as its working capital requirements will reduce as the inventory reduces. Since inventory is a major component of the working capital, better inventory management will help the firm.
Inventory/Sales
0.200 0.180 0.160 0.140

Inventory/Sales

0.120 0.100 0.080 0.060 0.040 0.020 0.000 2003

Dabur Industry Emami Godrej Consumer Marico

2004

2005

2006

2007

2008

2009

Year

FIGURE 9: COMPARISON OF INVENTORY TO SALES RATIO

Inventory to Enterprise Value Ratio

The table below represents the Inventory to Enterprise Value ratio of Dabur India Ltd and other firms in the same peer group from year 2004 to 2008. The table also contains information about the

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industry average. The Figure shows that, the Inventory to Enterprise Value ratio of the firm is well below the industry average and all its competitors in the years 2004 to 2008.

Inventory/ Enterprise value 200 8 Dabur Industry Emami Godrej Consumer Marico 0.02 1 0.03 3 0.02 2 0.05 0 0.05 0 200 7 0.01 9 0.03 3 0.03 4 0.03 4 0.05 1 200 6 0.01 6 0.05 0 0.03 4 0.02 1 0.03 6 200 5 0.04 0 0.08 9 0.07 2 0.04 2 0.07 7 200 4 0.04 8 0.12 1 0.07 9 0.05 2 0.12 7

Table 10: Comparison of Inventory to Enterprise Value Ratio

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Inventory/Enterprise Value
0.140

0.120

0.100

Inventory/EV

0.080

Dabur Industry Emami Godrej Consumer Marico

0.060

0.040

0.020

0.000 2003

2004

2005

2006

2007

2008

2009

Year

FIGURE 10: COMPARISON OF INVENTORY TO ENTERPRISE VALUE RATIO

Number of days Sales in Inventory

Number of days sales in inventory has consistently decreased for Dabur India Ltd from the year 2004 to 2008 and it is well above the industry average. It was 45 days in the year 2004 and has reduced to 30 in the year 2008. Around 30 days of sales of Dabur India Ltd is stuck in the inventory, compared to industry average of 43 days in 2008. The number of days of inventory is below that of the competitors during 2004 to 2008, except for Emami in 2007 and 2008. Dabur India Ltd needs to look into reducing the number of days sales so as to better manage its working capital.
No. of days sales in Inventory 2008 Dabur Industry Emami 30 43 25 2007 30 41 29 2006 32 55 43 2005 34 50 59 2004 45 43 50

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Godrej Consumer Marico

65 50

53 51

46 41

44 43

32 40

Table 11: Comparison of No. of days sales in inventory

No. of days Sales in Inventory

70.000

60.000

No. of days Sales in Inventory

50.000

40.000

Dabur Industry Emami Godrej Consumer Marico

30.000

20.000

10.000

0.000 2003

2004

2005

2006

2007

2008

2009

Year

FIGURE 11: COMPARISON OF NO. OF DAYS SALES IN INVENTORY

Inventory to Current Assets Ratio

In 2008, Inventory is a large component of current assets of Dabur India Ltd. In 2004, it was 49% but it has reduced to around 36% in 2008. Dabur India Ltd needs to look into the reasons of holding such a large amount of inventory. This trend in the ratio clearly indicates that the inventory holding position of Dabur India Ltd has improved over the years and will help a lot in better working capital management. For Emami this percentage is only 15% and this indicates that there is much scope for improvement in the position of Dabur with respect in inventory.
Inventory/ Current Assets 2008 2007 2006 2005 Dabur 0.36 0.39 26 0.40 0.50 2004 0.49

4 Industry Emami Godrej Consumer Marico 0.40 2 0.15 7 0.63 0 0.45 2

7 0.45 2 0.23 9 0.60 3 0.52 8

7 0.47 8 0.30 6 0.72 7 0.36 8

8 0.47 1 0.35 2 0.71 6 0.42 0

9 0.44 5 0.31 7 0.58 1 0.50 0

Table 12: Comparison of Inventory to Current Assets Ratio

The following figure shows that there is a mixed trend of the ratio of the Dabur compared to industry average and the competitors. The ratios are above industry average in 2004 and 2005 but it is below the industry average from 2006 to 2008. The ratio of Dabur is well below that of Godrej Consumer but it is well above that of Emami.
Inventory/Current Assets
0.800

0.700

0.600

Inventory/Current Assets

0.500 Dabur Industry 0.400 Emami Godrej Consumer 0.300 Marico

0.200

0.100

0.000 2003

2004

2005

2006

2007

2008

2009

Year

FIGURE 12: COMPARISON OF NO. OF DAYS SALES IN INVENTORY

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Account Receivable
Account receivables and sales ratio
The company has mainly three types of customers stockists, institutions and international/ export customers. The credit terms to the stockists vary from 110 days. Institutions like canteen stores department (CSD), large stores, hotels and modern malls are offered soft payment terms that may range from 15 to 90 days. Similarly, credit terms negotiated with export customers would depend on the international competition and product pricing. The table below represents the Account Receivables to sales ratio of Dabur India ltd. and other firms in the same peer group from year 2004 to 2008. The table also contains information about the industry average.

2008 Industry Dabur Marico Emami Godrej consumer 0.036276 0.048219 0.008136 0.058299 0.013751

2007 0.035802 0.038102 0.008799 0.088738 0.012927

2006 0.063061 0.020063 0.010022 0.121909 0.009945

2005 0.076567 0.040188 0.010965 0.161113 0.009209

2004 0.068188 0.038861 0.007964 0.203859 0.02695

Table 13: Accounts Receivables to Sales ratio

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Account receivables and sales ratio

0.25

0.2

0.15 Ratio

0.1

Industry Dabur Marico Emami Godrej consumer

0.05

0 2003

2004

2005

2006 year

2007

2008

2009

FIGURE 13: ACCOUNTS RECEIVABLES TO SALES RATIO

No of days in sales in Account receivables
80 70 60 50 Ratio 40 30 20 10 0 2003

Industry Dabur Marico Emami Godrej consumer

2004

2005

2006 year

2007

2008

2009

FIGURE 14: NO OF DAYS SALES IN ACCOUNTS RECEIVABLES

As seen from the graph above Dabur had lower account receivable and sale ratio till 2007 (and hence no of days in sales in account receivables) than the industry average but have increased a little from the average in the year 2008. In 2008 the ratio for Dabur is 0.048 which means that 17.6 days of sales are there in the account receivables. Among its peer group Marico was doing quite good with 2.096 days of sales in
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account receivables and Emami is doing worse than Dabur with 21.2 days of sales in the account receivables. Further it can be seen from the graph that over the years the industry average have improved but for Dabur the ratio have worsen in last two years this may be due to poor performance of its collection department or the relax credit policy of Dabur to boost up its sales.

Accounts Receivable/ Enterprise Value

2008 Indust ry Emami Godrej Marico Dabur 0.01 0.018 0.004 0.01 0.011 2007 0.01 0.038 0.003 0.011 0.007 2006 0.02 0.034 0.002 0.015 0.004 2005 0.049 0.069 0.003 0.032 0.015 2004 0.07 0.113 0.014 0.045 0.018

Table 14: Accounts Receivables to Enterprise Value ratio

FIGURE 15: ACCOUNTS RECEIVABLES TO ENTERPRISE VALUE RATIO

Active working capital management brings a reduction in the operating costs of managing inventories and receivables, thus improving liquidity. This strengthens the balance sheet, leading to improvement in the enterprise value and reducing the borrowing costs.

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The company has historically had better management of account receivable which resulted in better account receivable to Enterprise value ratio of Dabur as compared to industry average. However industry and the other competitors have been improving on the same and the trend suggests that the company might face tough competition in the management of accounts receivables in the time to come.

Account Payables
In this section, we take a look at the Account Payables of the firm and compare that with the industry averages. We will look at Account payables to sales ratio and number of days sales in account payables for the same purpose.

Account Payables to Sales Ratio

Dabur Marico Emami Godrej Consumer Industry 0.16 0.19 0.19 0.17 0.14 Average Table 15: Accounts Payables to Sales Ratio 200 8 0.28 0.16 0.21 0.31 200 7 0.22 0.24 0.14 0.29 200 6 0.23 0.15 0.13 0.25 200 5 0.26 0.12 0.09 0.25 200 4 0.22 0.12 0.06 0.23

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FIGURE 16: ACCOUNTS PAYABLES TO SALES RATIO

This ratio is obtained by dividing the 'Accounts Payables' of a company by its 'Annual Net Sales'. This ratio gives an indication as to how much of the suppliers money does a company use in order to fund its Sales. Higher the ratio means that the company is using its suppliers as a source of cheap financing. The working capital of such companies could be funded by their suppliers. Accounts Payable to sales ratio of Dabur is much higher than the industry average. It is also better than most of its competitors except for Godrej Consumer, as shown above. The ratio has improved significantly from 2007 to 2008. This indicates a better management of the working capital by the company. Only Godrej has a better ratio than Dabur. The company should try and improve this ratio further.

No. of days sales in Accounts Payables

Dabur Marico Emami Godrej Consumer Industry 57 70 68 63 50 Average Table 16: No. of Days sales in Accounts Payable 2008 102 57 75 113 2007 81 86 53 107 2006 84 56 47 91 2005 96 42 34 91 2004 80 42 20 85

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FIGURE 17: NO OF DAYS SALES IN ACCOUNTS PAYABLES RATIO

The number of days sales in accounts payables ratio of Dabur is also much better than the industry average. It is nearly above the industry average by 45 days. Here also, only Godrej consumer has a better figure than Dabur among the competitors.

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Operating cycle and cash cycle

Operating Cycle Dabur Godrej Marico Emami 200 8 44 59 58 50 200 8 -8 6 13 13 2007 41 50 52 49 2006 45 45 50 65 2005 46 42 48 78 2004 64 35 47 77

Cash Cycle Dabur Godrej Marico Emami

2007 -5 6 9 21

2006 -1 -11 12 39

2005 3 -11 12 54

2004 23 -16 13 55

Stock Arrives Inventory Period 30 days

Goods Sold

Cash Received Accounts Receivable Period 14 days

Accounts Payable Period 52 days Receipt of Invoice Operating Cycle Cash Payment

Cash Cycle (negative as cash is being received before the cash payment)

From the table and the illustration above it can be seen that Dabur have a negative cash cycle which indicates the general nature of the industry that the company operates, ie FMCG goods wherein the company is able to negotiate better credit terms from its suppliers and able to better manage its working capital. The company had a major restructuring of its working capital policy in 2004-2005 wherein it started the restructuring at different levels

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Cash Management - Cheques/ drafts received from customers in nearby places are sent for local clearing to initially collect funds in these bank accounts. This reduces the average collection period (as compared to the time it would take if customer cheques were first received at head office and then sent for out-station clearing); thereby increasing the velocity of cash inflows. Funds thus collected at the depot towns are each day transferred to the companys head-office (or corporate) bank account. The company has a sweeping arrangement with the bank at head-office by which any funds transferred from the depot towns are automatically applied towards settling the companys cash credit loan from the bank and reducing its debit balance. Debtors Management - Earlier these stockists used to enjoy five days credit period but now the company has decreased the time frame to one day. For new stockists sales are normally made through demand drafts. If a stockists cheque bounces, then the party has to make payment only by demand-draft. If a party defaults on payment (or a partys cheques bounce) more than once, then for all its transactions with Dabur India in the coming year the party would be required to make payments only by demand-drafts. The rest 30 per cent of the turnover with stockists takes place at remote places away from depot towns with no easy access to banks so that the anywhere cheque system is logistically not possible. Such stockists may be allowed a credit period of up to 10 days. On the average, the money is credited in companys bank account in 37 days. Institutions like canteen, stores department (CSD), large stores, hotels and modern malls are offered soft payment terms that may range from 15 to 90 days. Though such institutions are slower in making payments, the higher profit margins on such sales more than make up the cost of extended credit. Where longer credit terms must be offered as a part of the marketing strategy, the company often resorts to factoring as a means of financing debtors. The factoring arrangements are made with banks or specialized factoring companies. In these cases, the company makes sure that profit margins from such sales are high enough to cover the cost of factoring. Supplier Management - The Company enjoys credit periods ranging from seven to 90 days from the creditors, which can at times be extended up to 120 days. The suppliers use the bills discounting to avail bank financing against their receivables from Dabur India and bear the bank charges as well. However, if the credit period is extended beyond 120 days, the bills discounting charges are borne by Dabur India.

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References
o www.capitaline.com o www.investopedia.com o www.insight.com
o

www.dabur.com o Referred the annual reports of the last 5 years and other investor discussions

o Narender L. Ahuja and Sweta Gupta, 2005 - Working Capital and Cost Management

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