Fast Moving Consumer Goods (FMCG) & Consumer Durables: Long-term Best Buys?

Posted byshreyat Friday 16:42

Hey folks,

The following is a snapshot of Dabur India Ltd.Please include this too in the discussion.

Dabur India Ltd.
DABUR INDIA LTD. SALES EBITDA PAT EPA MKTCAP
9 YR CAGR 19.64% 24.12% 25.24% 20.74% 33.02%
5 YR CAGR 22.28% 21.46% 17.89% 9.28% 19.28%
3 YR CAGR 24.84% 20.00% 13.42% 0.93% 23.03%
1 YR GROWTH 29.71% 17.14% 13.42% 10.83% 7.53%
DABUR INDIA LTD. 31-03-2012 31-03-2011 31-03-2010 31-03-2009 31-03-2008 31-03-2007 31-03-2006 31-03-2005 31-03-2004
Financial Leverage 1.63 1.75 1.19 1.28 1.17 1.34 1.22 1.46 1.49
Long Term Debt/Earnings 1.67 1.84 0.35 0.58 0.29 0.56 0.49 0.97 1.17
current liability/earnings 3.25 3.06 2.78 3.25 3.08 2.83 2.70 3.56 4.53
Total liability/Earning 4.91 4.90 3.13 3.83 3.37 3.39 3.19 4.53 5.70
Debt/Equity 0.63 0.75 0.19 0.28 0.16 0.33 0.21 0.41 0.44
Interest Coverage 15.68 24.60 49.33 19.56 23.75 21.59 16.79 15.04 N.A
Working Capital/Sales 12.14% 9.07% 5.00% 4.79% 1.60% 7.99% 1.03% 11.42% 3.05%
Debtor Days 31 9 6 5 12 10 10 3 6
Inventory Days 32 32 13 23 27 25 15 18 21
Cash In/Cash Out Ratio 0.43 0.26 0.12 0.17 0.24 0.25 0.21 0.16 0.19
Gross Margin 47.05% 50.06% 53.74% 49.24% 52.46% 50.51% 56.63% 54.15% 56.00%
EBITDA Margin 17.86% 19.78% 19.33% 17.69% 18.34% 17.87% 16.15% 14.36% 13.31%
Net Margin 12.16% 13.90% 14.73% 13.87% 14.07% 13.81% 11.45% 10.41% 8.43%
Capital Turns 2.32 2.19 4.17 4.44 5.17 3.83 3.61 3.28 4.38
Fixed Asset Turns 3.23 2.73 5.26 5.64 5.64 5.51 3.75 5.25 5.06
Total Asset Turns 1.90 1.68 3.06 2.69 3.29 3.19 3.08 2.83 2.97
RoA 23.08% 23.29% 45.00% 37.27% 46.33% 43.99% 35.30% 29.40% 25.07%
RoE 37.56% 40.87% 53.60% 47.78% 54.07% 59.02% 43.09% 42.81% 37.23%
RoCE 30.25% 30.63% 54.75% 43.43% 55.72% 51.97% 45.77% 36.35% 34.91%
RoIC 30.11% 31.97% 61.71% 62.44% 75.25% 54.54% 46.80% 36.48% 43.74%
Tax Rate 18.52% 19.94% 17.04% 12.67% 13.47% 12.03% 11.79% 11.03% 11.95%

Sales (CAGR) : 1Yr>3Yr>5Yr>10 Yr.

Solvency: the Financial Leverage,long term debt/Earning and Debt/Equity has increased over time suggesting the company has become more leveraged over the period. With current level of earning it can pay off all its liabilities in little over 4 years and 9 months and long term debt in little over 1 and a half years.Interest coverage has remained above comfortable levels but the trend suggests a fall in interest coverage.

Liquidity &Efficiency:In absolute terms the liquidity position of the company is decent.But the trend of Net WC/Sales and cash in/cash out ratio the liquidity position has degraded.The company's efficiency also has worsened.

Gross Margins: The margins have declined over the yearssignificantly (a drop of 900 bps in last 9 years!).

turnover and return ratios: All the turnover & return ratios have worsened over the years.The company has made many acquisitions in the last decade and a study of the various businesses that it has acquired will help us decipher the cause.As of now looking at the current picture the company seems to have become inefficient in utilizing its assets and the returns have fallen.

At first sight the worsening solvency, liquidity, efficiency , declining gross margin, declining turnover and return ratios suggest that probably the company is loosing its competitive advantage.

Some qualitative feature of the business worth noting are as follows:

  1. distribution network: It has a Wide and deep market penetration with 50 Carrying & Forwarding agents, more than 5000 distributors and over 3.4 million retail outlets all over India for its most widely distributed products and 5-5.5 million retail outlets all total.it has high penetration in both urban and rural markets. For its healthcare products, DIL has a reach of 200,000 chemists, ~12,000 vaidyas and 12,000 ayurvedic pharmacies. DIL operates a specialised beauty retail business under the brand âNew Uâ, held under its whollyâowned subsidiary H&B Stores Ltd. As of FY12, the company had 47 stores, with outlets spread across North India and South India.
  2. Types of businesses:The Company derives a significant portion of its revenue from products that have pricing power (products are natural and have the health preposition).These products with pricing power fall in two categories. The first category includes products that have a dominant market share like chavanprash, glucose, herbal digestives, digestive tablets, honey etc. These have built brand loyalty among customers through focus on quality, taste, advertising etc. These brands are synonymous to the products. The second category includes Products like Babur lal tooth paste, Miswak, Babool, Dabur honeitus etc. These due to their product differentiation are perceived to be a different product and this gives them pricing power in an industry which is either largely competitive or is not dominated by the companyâs products.. These products own a piece of the consumerâs mind in one way or the other and whenever the consumer has to buy these products it has to buy it from Dabur. Hence these products have consumer monopoly.
  3. Another point worth noting is the fact that the company derived 47% of its domestic revenue from rural India as compared to 45% last year.