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Aarati Krishnan

INVESTORS with a conservative risk profile can consider adding the Dabur India stock to their portfolio at its current price levels of Rs 47. With established brand equity in the market for herbal products and a well-diversified basket of brands and products, Dabur India appears to offer scope for reasonable earnings growth over the long term. The stock trades at a price earnings multiple of around 20 times its per share earnings for 2001-02. The stock may be a suitable investment for investors looking for moderate returns with low volatility in stock prices.

<>Profile>: Diversification across product segments and markets is one of the key factors in favour of Dabur India. In 2001-02, Dabur India had three major revenue contributors — FMCG products, pharmaceuticals and ayurvedic specialties, accounting for 76 per cent, 14 per cent and 7 per cent respectively, of its revenues. Dabur's FMCG product basket includes such strong brands as Dabur Chyawanprash, Vatika hair products, Hajmola digestive candy, Pudin Hara, Dabur Lal Dant Manjan and Dabur Lal Tail massage oil. In pharmaceuticals, Dabur India markets branded as well as bulk formulations, both in the domestic and export markets; oncologicals is a key focus area. Dabur's anticancer molecule DRF 7295 is currently in phase I clinical trials on humans.

Despite its diversified profile, Dabur has been quite vulnerable to the agricultural and economic slowdown. In 2001-02, while the FMCG business recorded a mere 1.6 per cent growth in sales, the ayurvedic specialties business registered a sales decline of 17 per cent. The performance was salvaged to some extent by the pharmaceutical business which grew 7.2 per cent. Dabur's net sales were almost flat for the year 2001-02.

But going forward, Dabur appears to hold reasonable potential for growth over a two-three year time frame.

<>Prospects>: Though the market for herbal FMCG products is getting increasingly crowded, with both FMCG giants, such as Hindustan Lever and pharma companies, such as Dr Morepen investing aggressively to get a piece of the action, this competition may be restricted to a few of Dabur's product segments such as digestives, hair oil and oral care. In niche products, such as Chyawanprash and baby massage oil, it may be difficult for a new contender to displace Dabur.

Dabur is yet to fully exploit the immense growth potential in exports of ayurvedic products, herbal FMCG products and pharmaceuticals based on research in ayurveda. Next, while Dabur's sales performance in 2001-02 was subdued partly on account of its investment in supply chain initiatives, though these could pay off in the form of higher profit margins over this fiscal.

The only uncertainty for prospective investors in Dabur could arise from a hiving off of its pharmaceutical business. The company recently completed an internal restructuring to segregate its FMCG and pharma businesses. Should it decide to hive off its pharma business into a separate company, the manner in which it allows shareholders to participate in the new entity may have a bearing on valuations.

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