CRISIL affirms Dabur's ratings after Balsara acquisition

Rs200 million Non-Convertible Debenture issue
AA+/Stable (Reaffirmed)
Fixed Deposit programme
FAAA/Stable (Reaffirmed)
Rs800 million Short-Term Debt programme
P1+ (Reaffirmed)

CRISIL has reaffirmed its top AA+, FAAA and P1+ ratings on Dabur India Ltd (Dabur) following Dabur's announcement of its proposed acquisition of three Balsara-group companies (Balsara Hygiene Products, Balsara Home Products and Besta Cosmetics) in an all-cash deal amounting to Rs1.43 billion, to be funded largely through internal surpluses.

The acquisition will strengthen Dabur's position in the fast-moving consumer goods (FMCG) sector by expanding its range of oral care products and enabling it to diversify into household products such as dish detergents, air fresheners and insect repellents. Dabur and the Balsara companies will also benefit from economies of scale in production, marketing and distribution. The deal is subject to approval from shareholders, expected in April 2005.

CRISIL feels that Dabur's strong profitability and balance sheet will enable it to sustain its current high rating even after consolidating the Balsara group companies' weak financials. Dabur's strong financial profile emanates from its comfortable capital structure (net worth of Rs2.6 billion and gearing of 0.15, as in March 2004), high net profit margins (10 per cent in FY03-04), as well as healthy cash accruals and interest coverage ratios.

Dabur has a portfolio of extremely strong over-the-counter (OTC) brands such as Dabur Vatika, Hajmola, Anmol and Real. The pharmaceutical business was demerged into Dabur Pharma Ltd in April 2003. Its remaining businesses are organised into consumer care (healthcare, hair care, oral care and skin care) and health care divisions (comprising ayurvedic medicines such as asavs, arishtas, churans and rasayanas). Its main subsidiaries include Dabur Foods Ltd, Dabur Nepal Pvt Ltd and Dabur International Ltd.

For the year ended March 31, 2004, the company reported sales (net of excise duty and sales tax) of Rs9.97 billion (Rs10.80 billion in 2002-03, including the pharmaceutical business) and a net profit (PAT) of Rs1.01 billion (Rs0.85 billion). For the nine months ended December 31, 2004, Dabur reported a PAT of Rs1.07 billion (Rs0.75 billion) on net sales of Rs9.56 billion (Rs8.60 billion).

The Balsara group companies are present in the oral care segment (Promise, Babool and Meswak toothpastes) and in household products such as air freshener (Odonil), dish detergent (Odopic), toilet cleaner (Sanifresh) and insect repellent (Odomos). For the year ended March 31, 2004, Balsara reported a net loss of Rs0.08 billion on sales of Rs 2.0 billion.

The company continues to support its financially weaker subsidiaries and affiliates, having extended corporate guarantees to them. However, CRISIL does not expect these guarantees to devolve on the company. The current rating does not factor in any additional support to group companies.

Outlook: CRISIL expects Dabur India to sustain its strong market position and financial profile.