The pharmaceutical division of Dabur India, which was formed through a de-merger of the parent company, is likely to get listed on stock exchanges in August. In April last year, Dabur India separated its consumer and pharma divisions into separate entities. Last week the Dabur India stock started trading ex-pharmaceutical business, reflecting the underlying value of only the consumer business. It is expected that Dabur Pharmaceuticals' stock will be listed on the bourses around the first week of August.
One share of Dabur Pharmaceutical will be issued to shareholders for every two shares of Dabur India. The annual report for FY04 highlights the underlying strength of its consumer business. While its businesses have been run as separate entities for the past two years, it is only now that the company has started publishing separate detailed accounts. The company's FY04 annual report shows that its consumer business is a highly efficient operation that is likely to see further improvements as greater focus sets in. Many analysts have benchmarked Dabur's key working capital efficiency parameters to those of companies such as HLL and Nestle that are among the most efficiently run companies in consumer sector.
The key ratios for Dabur such as inventory turnover, creditor days and debtor days are comparable to the benchmark companies.
Also, Dabur's niche positioning will aid growth and margins. At a time when the consumer non-durable segments have been under pricing pressure, companies that operate in niche segments that have product-related entry barriers, are now looking up. Dabur India is one of the few companies that grew rapidly as well as expanded margins last year. Most of Dabur's products are based on traditional Indian medicinal platform (ayurveda), a niche that is unlikely to see pricing erosion. It is likely to expand its platform to include herbal and natural products. New product offerings (skin creams, oral care products and health-care products) and increased focus on geographies such as south India and the export markets, where Dabur does not have a sizeable presence, are likely to drive strong sales growth. The company is also setting up new manufacturing facilities in tax-free zones. This should result in substantial excise tax savings from FY05.
Dabur has significant exposure to the rural markets. The consumer sector is a laggard sector, which could play catch-up in 2004 as rural incomes kick in to drive demand. Also, there could be a savings of Rs600 million annually for five years because of lower excise taxes arising from manufacturing units set up in excise exemption zones. A part of these savings are likely to be passed on to consumers to drive volumes, while the rest would flow to the bottom line.