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Dabur India Limited16

Management Discussion and Analysis

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ServicesIndustryAgricultureGDP

Chart A : Sectoral Growth (%)

5.6

4.4

5.7

-3.1

3.3

6.16.8 7.1

2001-022002-03

2002-03 was a mixed year for the Indian economy. Theindustrial and manufacturing sectors staged a modest

recovery. The former grew by 6.1 per cent and the latter by

5.7 per cent, compared to 3.3 per cent and 2.7 per centrespectively, in 2001-02. However, a decline of 3.1 per cent

in agricultural output resulted in GDP growing by just

4.4 per cent in 2002-03, as against 5.6 per cent growth in

2001-02. Chart A gives the data.

To combat these trends and protect their market share, mos

companies have resorted to volume discounts, freebies

two-for-one and other consumer promotion schemes. In

addition, well-established players in the industry are facingtough competition from new entrants as well as regiona

companies, who are making inroads into the market with

aggressive price offerings. All these factors are putting furthe

pressure on the sales realisations as well as margins of almos

all FMCG companies.

Your Company had to perform under these demanding marke

conditions. Given the unfavourable environment, we have

reasons to be satisfied with our performance. Here are some

of the salient features of our financial performance in 2002-03

Revenue from operations increased by 5.9 per cent

from Rs.1,163.2 crores in 2001-02 to Rs.1,232.3 crores

in 2002-03.

Profit Before Depreciation, Interest and Taxes (PBDIT

grew by 11.8 per cent, from Rs.120.5 crores in

2001-02 to Rs.134.7 crores in 2002-03.

The operating profit margin ratio of PBDIT (less othe

income) to sales increased from 9.2 per cent in

2001-02 to 10.3 per cent in 2002-03.

Interest outgo fell by 28.7 per cent, from Rs. 24.0 crores

in 2001-02 to Rs.17.1 crores in 2002-03.

Profit After Tax (PAT) grew by 32.1 per cent, from

Rs. 64.4 crores in 2001-02 to Rs. 85.1 crores in 2002-03

Return on Capital Employed (ROCE) grew from 14.5

per cent in 2001-02 to 19.7 per cent in 2002-03.

Return On Net Worth (RONW) increased from 16.2

per cent in 2001-02 to 20.8 per cent in 2002-03

The test of a good company lies in its ability to produce

superior results in tough times. A benchmarking exercise

with 7 leading companies in the FMCG space (including

Dabur), whose financial results are currently available, shows

that Daburs sales and profits growth have outstrippedaverage sales and profits growth of the sample for the yea

ended 31st March, 2003. As Chart B shows, as against the

samples average sales growth of (-)2.4 per cent, we have

grown by 5.9 per cent. Moreover, as against the average

post-tax profit growth of (-)0.9 per cent, our post tax profi

has grown by 32.1 per cent. As a matter of fact, Dabur ranks

best in terms of profit growth.

Note : All figures are CSO estimates for April-March.

Unfortunately, the revival witnessed in the industrial and

manufacturing sectors has not extended to the Fast Moving

Consumer Goods (FMCG) sector, which constitutes 85 per

cent of your Companys sales. For the third year in

succession, this sector has failed to live up to its name, and

has witnessed sluggish to negative growth across most

product categories.

The dismal performance of the agriculture sector a key

driver of rural demand has undoubtedly had an adverse

impact on FMCG sales in the second half of 2002-03. In

addition, the uncertainty about the implementation of the

state Value Added Tax (VAT) resulted in primary sales suffering

a setback in the last two months of 2002-03. Apart from

these two factors, there are certain long-term economic and

social trends at play, which need to be examined while

discussing the sustained slowdown in the sector.

The growth of per capita income in the country has slowed

down from 6 per cent in 1994 to 3.4 per cent in 2002. Inthe same period, growth of Personal Disposable Income

(PDI) has reduced much faster from 15 per cent to 5.3

per cent. Slowdown in the growth of PDI has resulted in

sluggish off take of personal care and other FMCG

products, as well as a growing trend towards down trading

to cheaper and lower value brands, particularly in the

necessity product categories.


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Annua l Repor t 2002-0

miscellaneous products. Till 2001-02, we had kep

Ayurvedic specialities and miscellaneous products separate

from our FMCG product portfolio. However, in view of the

imminent de-merger of the FMCG and Pharmaceuticabusinesses, it has been decided to consolidate all the

businesses that will remain in the FMCG company unde

one head. The business has grown by 4.8 per cent from

Rs.1,000.2 crores in 2001-02 to Rs.1,048.5 crores in

2002-03. The part of the business consisting of only

Personal care and Health care products grew by 6.5 pe

cent in 2002-03 over 2001-02. Chart C gives a three-yea

comparison of FMCG sales.

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10

15

20

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Chart B : Dabur vis-a-vis a sample of

7 FMCG Companies, 2002-03 (% Growth)

5.9

-2.4

32.1

-0.9

DaburFMCG Industry

Sales Profit After Tax

Notwithstanding these milestones, we are conscious of the

fact that we are competing in an extremely challenging

environment. We have, therefore, taken several new initiatives

in the year under review, which we believe will instil greater

focus within the organisation, accelerate growth and create

value for our shareholders. We would like to highlight threeof them.

First, subject to approval from shareholders and

appropriate authorities, we have decided to de-merge

our Pharmaceutical business from Dabur India, and

transfer it into a new company Dabur Pharma Limited.

Consequently, Dabur India Limited will be a focused

FMCG company.

Second, we have re-engineered our FMCG business

with a view to leverage synergies and scale, and to

reduce costs.

Third, we have recast our strategy for both FMCG and

Pharma businesses. As part of the new strategy for the

FMCG business we are streamlining our brand

architecture with the objective of focusing on five major

brands and enhancing their brand equity.

These and other strategic initiatives will be discussed at

length in the course of this chapter. We will begin with a

review of products and markets for these constitute the

core of your Company.

MARKETSA) FMCG

The FMCG business generated Rs.1,048.5 crores of sales,

and accounted for 85 per cent of the total sales of your

Company. During 2002-03, this business primarily

consisted of Personal care products, Health care products,

FMCG exports, Ayurvedic specialit ies, and some

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400

600

800

1000

1200

2002-032001-022000-01

Chart C : FMCG Sales (in Rs. Crores)

498.2 517.8

336.7340.1

82.658.4

68.677.1

567.5

329.7

104.382.4

Personal Care Health CareAyurvedic Others

PERSONAL CARE PRODUCTS

This business accounted for 46.1 per cent of Daburs tota

sales, and 56 per cent of the Companys total FMCG sales

in 2002-03. Notwithstanding sluggish market conditions

Daburs Personal care products sales grew by 9.6 per cen

from Rs.517.8 crores in 2001-02 to Rs.567.5 crores in

2002-03. The Personal care products portfolio of the Company

primarily consists of hair care, oral care products and skin

care products, and honey. Chart D gives sales break-up o

the personal care products portfolio.

Shampoo

Given the low incidence of using shampoo for hair washing

in India, shampoos have considerable head room for growth

although launch of new products at lower price points and

sustained downtrading have slowed the value growth of thi

segment.

Daburs Vatika range of shampoos, comprising of hai

conditioning shampoo and an anti-dandruff shampoo, fared

well during the year and were important growth drivers fo


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the Company. The combined growth of the Vatika range

was 17.6 per cent. Overall, your Company was able to

increase its market share in the hair shampoo segment,

while keeping prices stable and margins intact. We plan to

launch a new shampoo in 2003-04 and, going forward, we

are confident of maintaining our high growth in this segment

of the market.

Hair oil

The hair oil category witnessed a substantial increase in raw

material prices during 2002-03. Given that Daburs prices in

this category are higher than those of the competition, the

input price hike could not be passed on to the consumer.

Consequently, gross margins in this business came under

severe pressure. Nevertheless, during the year under review,

our leading brand in the hair oil category, Dabur Amla Hair

Oil, witnessed a strong 7.8 per cent growth in sales. Wehave recently launched a new advertising campaign for this

product.

Notwithstanding the good performance of Dabur Amla Hair

Oil, we are conscious of the fact that this segment as a

whole is not growing fast enough. We plan to inject a growth

momentum into this business through new product launches.

Besides the launch of a new cooling hair oil, we propose to

launch a hair oil for the mass market in 2003-04.

Oral care

Daburs Lal Dant Manjan (LDM) is the second largest brandin the toothpowder segment. While this product category

as a whole witnessed a decline during 2002-03, our brand

did well. We are planning a new advertising campaign for

LDM in 2003-04, and we hope to grow sales and further

increase our market share in this segment. In an important

initiative in the oral care segment, your Company launched

a new toothpaste during the year under review. This

toothpaste is based on the LDM platform, and is targeted a

LDM users who want to upgrade to toothpaste, as well as

lapsed LDM users who have migrated to toothpaste. You

Company is aware that the toothpaste market is highlycompetitive, and we will follow a calibrated and judicious

strategy to secure a niche in this category.

Honey

Dabur Honey is the largest Indian brand in the organised

sector. During 2002-03, this product witnessed a volume

growth of 14.8 per cent, and a value growth of 21.4 pe

cent. However, there was more than a 50 per cent increase

in the price of sourcing raw honey, which had an adverse

impact on the margins of the product.

Growth prospects

While we are satisfied with our performance in the Persona

care products business, we believe there is considerable

potential for growth in this market. None of our products

has market share in excess of 30 per cent in their categories

Indeed, with the exception of Dabur Amla Hair Oil, LDM and

Dabur Honey, none has market shares of more than 10 pe

cent. Thus even in a scenario of low overall growth, we wil

strive to increase our market shares in all these segments

We will also attempt to drive the Companys growth in the

Personal care products category through innovations and

new product launches. In 2003-04, apart from the new

shampoo and hair oil launches mentioned earlier, the

Company plans to introduce Skin care products under the

Vatika brand. Going forward, we foresee Hair care and Skin

care categories to be major growth drivers for the Company

and we will roll out new initiatives to consolidate our presenc

in these markets.

HEALTH CARE PRODUCTS

The Health care products business of your Company grew

by 1 per cent from Rs. 336.7 crores in 2001-02 to Rs. 340.

crores in 2002-03, and accounted for 27.5 per cent of the

Companys sales. Daburs product portfolio in this segmenincludes brands such as Dabur Chyawanprash, Hajmola and

Pudin Hara, which are market leaders in their respective

product categories. Chart E gives the sales break up of the

Health care products portfolio. Sales in this business were

subdued during the year as a result of failure of monsoon

as well as uncertainty regarding implementation of VAT in

the last two months of the year.

Chart D : Sales Composition of

Personal Care Business

Hair Oil

Shampoo

Oral Care

Honey

Others

50%

12%

27%

7%

4%


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While overall sales growth of the health care product portfolio

remained subdued during 2002-03 as a result of sluggish

market conditions, it is important to note that the overall ne

contribution from this business (inclusive of sales andmarketing costs) increased by over 30 per cent. This wa

due to greater procurement efficiencies and bette

management of the Companys marketing spend.

Growth prospects

As the above discussion shows, some of the Company

low volume products fared well in 2002-03, and achieved

sales as well as market share growth during the year

However, the sales of some of our major brands, such as

Dabur Chyawanprash, Pudin Hara, and Hajmola, did no

register significant increases. Some may argue that these

brands are market leaders in mature product categories and

as such, it is inevitable to see slackening growth. We a

Dabur do not agree with this contention. We are of the view

that there is still considerable potential to grow these produc

categories, and we will strive to increase our sales as we

as market shares in them.

We are revamping the communication mix of Dabu

Chyawanprash, and a new, contemporary, packaging will be

launched in 2003-04. New variants of Pudin Hara, and

Hajmola, too, will be launched in 2003-04.

Our outlook for the Health care product portfolio is

positive. Apart from growing our existing brands, brand

extensions, and introduction of new products are in the

pipeline. We are also looking at expanding our health

supplements portfolio, and propose to develop the Over

The-Counter (OTC) Health care business in a significan

manner. New OTC products will be launched during

2003-04, and we expect this business to be a key growth

driver.

KEY INITIATIVES

Before concluding our discussion on the Personal care and

Health care businesses, we would like to highlight two key

initiatives taken by your Company during 2002-03. As

shareholders are aware, brands are the lifeline of an FMCG

company, and Dabur is fortunate to have developed brands

which have strong equity with consumers. To leverage this

brand equity, and to align our brands with our growth

objectives, we are going to streamline our brand

architecture. We have decided to focus on five key brands

Health supplements

In this category, Dabur Chyawanprash maintained its market

share at 65 per cent, despite the launch of two new

competing products. However, the Chyawanprash category,

as a whole registered a negative growth during the year due

to an extended summer, failure of the monsoons and a

truncated winter. In line with the general trend in the industry,

our product too experienced a sales decline. This decline

was to a certain extent arrested by a strong showing in the

second half of the year, when Dabur Chyawanprash posted

a three per cent growth.

Another health supplement, Glucose D fared well during the

year, and was able to increase its market share from 9.4 per

cent in 2001-02 to 11.6 per cent in 2002-03. Driven by its

first ever-advertising campaign, this product registered a 32per cent sales growth during the year.

Digestives and Confectionary

Hajmola sales witnessed a marginal decline of less than

1 per cent, even as its market share remained stable at 79

per cent. Sale of the Pudin Hara group of products increased

by 6 per cent, with Pudin Hara liquid growing by 26 per cent

as a result of enhanced above-the-line advertising activity. In

the confectionary segment, Hajmola candy witnessed a

negative sales growth as a result of new competing launches

and increased competition in the segment.

Baby oil

Dabur produces the largest baby oil in the country Lal Tail

which recorded an 18 per cent sales growth. Baby Olive

Oil, which was launched in 2001-02, too, fared well during

the year under review, and finished its first full year with a

market share of 1.4 per cent. We plan to further consolidate

our position in this segment.

Chart E : Sales Composition of

Health Care Business

HealthSupplements

Digestives

Baby Care

Confectionary

Others

45%

30%

14%

8%

3%


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Dabur, Vatika, Hajmola, Anmol and Real. Fresh investments

will be made in further strengthening their brand equity,

and the advertising strategy of your Company will

concentrate on these brands.

FMCG EXPORTS

Exports of Dabur increased by 60.7 per cent from Rs.15

crores in 2001-02 to Rs.24.1 crores in 2002-03. These figures

do not include the reorganised Middle East exports, which

has been transferred to a franchisee.

In the year under review, exports to Russia picked up with

introduction of more products and expansion in distribution

network. Dabur Boro Glow was successfully introduced and

in another initiative, new products under the brand name o

Dr. Burman were introduced through multi-level marketing

channels. Dabur plans to launch other products under its

own brand name in Russia. In UK and other European

markets, Vegecaps were introduced in the nature care range

of products. Hair oils, Shampoos and Hajmola were exported

to Afghanistan. Initiatives were also taken to market the

Companys products in Australia, New Zealand and Wes

Indies.

The Company also made significant progress towards

entering the lucrative North American markets. Distributors

have been appointed, and marketing of products to the ethnic

Indian segment have begun.

In another important development, Dabur is entering into a

joint venture with a local partner to manufacture and marke

our products in Bangladesh. Dabur will hold a majority stake

in this joint venture, and we expect Bangladesh to become

an important market for our products.

In 2003-04, the Company plans to continue with its focus on

Russia and CIS countries along with Afghanistan, West Indies

and the Asia-Pacific region. Efforts will also be made to

make further in-roads into neighbouring countries, and

explore new markets.

Dabur has identified exports as a major thrust area for the

future. An international business division has been set up

within the Company to promote exports, and we expect this

business to grow steadily in the coming years.

AYURVEDIC SPECIALITIES

The Ayurvedic specialities range of products of Dabur used

for the treatment of common as well as serious ailments

can be categorised into Asavs, classicals and branded ethica

products. This business saw a growth of 7.1 per cent from

Rs.77.1 crores in 2001-02 to Rs.82.6 crores in 2002-03.

Vatika and Anmol will be our flagship brands for the Personal

care products portfolio, and most of the diversification into

new product categories, such as skin care, will be spearheaded

by them. While Vatika will be positioned as a premium brand,

Anmol will be positioned as a mass market, value for money

brand. Hajmola will be positioned as a digestives and

confectionary brand, while Real will be the umbrella brand for

juices and food, aimed at upmarket urban consumers.

Dabur will be the mother brand of the Company. Given the

salience and the recall value of the Dabur brand name, it will

be spread across the FMCG space, with particular emphasis

on Health care products.

The second key initiative taken in 2002-03 was the decision

to re-organise our FMCG business to leverage synergies

and scale, and to reduce costs. Consequently, the two

erstwhile Strategic Business Units (SBUs) of the Company

the Family Products Division (Personal care products) and

the Health Care Products Division have now been merged

into one SBU. Personal care products and Health care

products have significant overlap in terms of distribution

and retail networks, and these will now be distributed

through a common arrangement. This will result in synergies

and cost savings. Moreover, the integration will assist inbetter management of finished goods inventory, and give

a boost to the Companys effort to focus on secondary

sales.

We are confident that these initiatives, along with the slew

of new product launches and aggressive product extensions,

will inject a growth impulse into Dabur.


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While Asavsand classical product categories have reached

maturity stage, branded ethical products have a greater

opportunity of growth. Therefore, the Company has been

focusing on the last category by increasing the product rangeand by introducing these in newer delivery systems. New

product launches are backed by clinical trials.

To promote its Ayurvedic specialities, Dabur has followed

the strategy of active interaction with the Ayurvedic

community doctors, BAMS (Bachelor of Ayurvedic Medical

Sciences), and vaids who prescribe these products. Factory

visits have been organised for these professionals to make

them aware of our high standards of processing and

manufacturing, as well as our commitment to quality.

DABUR FOODS LIMITED (DFL)

Dabur Foods Limited is a 100 per cent subsidiary of Dabur

India Limited, and is engaged in the marketing of natural

fruit juices and ethnic cooking pastes. The Companys brand

portfolio includes Real, Hommade, Lemoneez and Capsico,

of which Real and Hommade have been identified as the

growth drivers of the Company. In 2002-03, Dabur Foods

recorded sales growth of 29.8 per cent to Rs.69.2 crores.

B) PHARMACEUTICALS

The Pharmaceuticals business of your Company grew by 12.8

per cent from Rs.162.9 crores in 2001-02 to Rs.183.8 crores

in 2002-03. Dabur has a strong presence throughout the entirePharmaceutical spectrum ranging from cutting edge origina

research to manufacturing of Active Pharmaceutical Ingredients

(APIs) and formulations, to sales and distribution.

As shareholders may be aware, we have taken a strategic

decision to concentrate on the Oncology (anti-cancer

business, and we are the market leader in this segment in

India, with a more than 20 per cent market share. We have

also established a significant presence abroad, and are

currently present in over 25 overseas markets.

In the domestic market, our branded formulations business

grew by 11.1 per cent in 2002-03. During the year unde

review, your Company launched three new Oncology

products in the domestic market :

Thalix, Indias first thalidomide brand, was introduced

in October 2002. Thalidomide has extensive clinica

efficacy in multiple myeloma (a kind of blood

malignancy) and leprosy. With its introduction at an

affordable price, this launch has been able to bridge

the need gap which existed in the management of this

disease. An extensive patient education programme has

been introduced to help the physicians and patients in

safe handling of the drug. Thalix is available as 50 mg

and 100 mg capsules.

Oxitan, an oxaliplatin brand, has been indicated fo

treatment of coloroctal cancer. Unlike other oxaliplatin

brands, Oxitan offers the unique advantage of being

available as a ready to use solution, thus avoiding

complications related to reconstitution. Oxitan is

available as 50 mg and 100 mg vials injection.

Trozet (letrozole) is indicated for the treatment o

hormone responsive breast cancer, and offers significan

advantages over conventional treatment in terms o

efficacy and survival. This introduction will furthe

strengthen our presence in the breast cancer therapeuti

segment. Trozet is available as a 2.5 mg tablet.

In addition to new domestic product launches during

2002-03, Dabur expanded its overseas presence by making

a foray into the generic markets of Mexico, Vietnam and

Myanmar. We have emerged as the largest generic paclitaxe

seller in Philippines, Thailand, and Malaysia.

During the year under review, two new products were

introduced in the Hommade range tomato puree and

coconut milk. In the Real range, two new flavours Litchi

and Guava were launched, taking the total variants to

eight. Sales of Real grew by 25 per cent between 2001-02

and 2002-03. In addition to retail consumers, the marketing

and sales initiatives of the Company were directed at

boosting institutional sales to hotels, restaurants and

caterers. In 2003-04, the Company plans to sharpen its

marketing strategy and modify its packaging to align it with

the tastes like eating a fruit concept that it intends to

project for the Real brand.


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In July 2002, with the objective of making the Pharmaceutical

business of the Company more focused and efficient, all

the operations and functions of the Pharmaceutical division

were separated from the FMCG operations of the Company.

The entire Pharmaceutical division was relocated in one office

premises, and a dedicated team was created to manage

support functions such as operations, purchase, finance,

quality assurance, and supply chain.

Subsequent to this virtual de-merger, the Board of Directors

of your Company decided to de-merge the Pharmaceutical

business from Dabur India and transfer it into a new

company, Dabur Pharma Ltd. with effect from 1st April, 2003,

subject to approval from shareholders and appropriate

authorities. The advantages and implications of the de-merger

have been discussed in detail later in this chapter.

In our last year Annual Report, we had stated that we werein the process of formulating a well-integrated growth

strategy for the Pharmaceutical business, and had appointed

Accenture to assist us in this strategy formulation. Our long-

term growth strategy was finalised during 2002-03, and

contains three key components.

First, we will become a major player in the global

Oncology generics business.

Second, in the field of original research, we will focus

on developing New Chemical Entities (NCEs) and New

Drug Delivery Systems (NDDS) in the Oncology

therapeutic segment.

Third, we will grow our domestic branded generics

business without committing huge investments into it.

At present, exports account for around 36 per cent of

the Companys Pharmaceuticals sales, and the new

Pharmaceutical company will aggressively pursue

opportunities both in highly regulated as well as less

regulated markets. We believe that there will be a $12 to

$15 billion opportunity in the global generic Oncology

market from 2005 to 2012, and we are getting poised to

be a recognised player in this space. Dabur has obtained

marketing approvals for Oncology products in many key

export markets of Asia, CIS, Central and South America,

and Africa. Over the next few years, we will increase our

global footprint and set up marketing networks

throughout the world.

The US market constitutes the ultimate destination for all

Pharmaceutical companies. During 2003-04, Dabur Pharma

will make its first Abbreviated New Drug Applications (ANDA

filings in the US. Para 4 filings, which give the first to market

advantage in the US generics market, will also form a par

of our US growth strategy. The formulation manufacturingfacility of our UK-based wholly owned subsidiary, Dabu

Oncology Plc, is approved by MCA, UK. We intend to apply

for US FDA approval both for our UK plant, as well as the

API manufacturing facility at Kalyani, West Bengal. In addition

to the US, we also have aggressive growth plans for the

European market.

As Dabur Pharma grows in the overseas generics market

we will use the export earnings, along with domestic profits

to invest in original research. Our initiatives in the research

and development field have been discussed in detail later in

this chapter.

OPERATIONS

MANUFACTURING

Dabur has six manufacturing facilities at Sahibabad (Utta

Pradesh), Baddi (Himachal Pradesh), Alwar (Rajasthan), Katn

(Madhya Pradesh), Kalyani and Narendrapur (West Bengal)

The APIs and formulations of the Company are manufactured

in-house at Kalyani, Sahibabad and Baddi. Fifty per cent o

FMCG products, comprising the Health care products and

Ayurvedic specialities portfolio, are manufactured in-house

while the Personal care products portfolio, which accounts

for the remaining 50 per cent, are out-sourced to eigh

contract manufacturers.

Your Company is in the process of setting up a

manufacturing facility at Jammu, for manufacturing Persona

care products. Jammu has been selected as the new site

in order to avail fiscal benefits offered for setting up

manufacturing facilities in that location. This plant will be

commissioned in 2003-04.


8/13



Your Company has been giving considerable emphasis on

improving manufacturing and operational efficiencies. During

the year under review, we focused on enhancing productivity

of capital and existing assets, improving plant efficiencies inthe existing manufacturing facilities and following more

stringent quality control and supervision norms at out-

sourcing locations. Standardisation of processes, tight budget

controls and energy audits constitute some of the other

initiatives undertaken by the Company to improve its

operational performance.

As a result of these measures, operating profit margin

(excluding other income) of the Company has improved from

9.2 per cent in 2001-02 to 10.3 per cent in 2002-03. Chart F

shows the continuous improvement of the Companys

productivity (defined as value of sales per worker), from

1998-99 to 2002-03. Productivity increased by almost 18 per

cent, from Rs.28 lacs per worker in 2001-02 to Rs.33 lacs per

worker in 2002-03, mainly due to better shop floor practices,

lower breakdowns and improved efficiency in energy use.

Wastage on the shop floor has reduced by more than 20 per

cent in 2002-03 over 2001-02.

SUPPLY CHAIN MANAGEMENT

Efficient supply chain management is critical to Dabur, which

markets over 600 SKUs. The supply chain integrates a wide

range of functions encompassing production scheduling to

materials planning and procurement to primary distribution

Information Technology (IT) has played a major role in

strengthening the supply chain management by improving

operational efficiencies in procurement, production and

delivery systems. With the implementation of Baan and Mfg

Pro, supply chain management has benefited from stable

and more efficient production planning on the basis o

accurate secondary sales and stock data. Efficient supply

chain management has enhanced the flexibility of operations

lowered operation cycles and finished goods inventoriesreduced delivery costs, while improving customer-servicing

levels. In addition to meeting tight budgetary controls, these

improvements have resulted in substantial reduction in costs

due to freeing up of extra working capital.

Dabur has over 500 vendors through which they source thei

raw materials. During 2002-03, the Company followed a

strategy of rationalising its vendor base. The Company also

appointed Freemarkets, a leading e-procurement company

to assist the Company in implementing its e-sourcing

initiatives. During the year, the Company conducted

successful reverse auctions for two raw materials saffron

and jadi-booti as well as for fixing freight rates. These

initiatives resulted in a saving of around 7 per cent to 8 pe

cent on current prices of these raw materials. The Company

plans to procure more products through the reverse auction

route. This will help rationalise and upgrade the vendor base

of the Company, while at the same time result in substantia

savings and greater transparency in the procurement process

RESEARCH AND DEVELOPMENT

PHARMACEUTICALS

Discovery research in the area of Oncology forms an

important component of the growth strategy of Daburs

Pharmaceutical business. The Dabur Research Foundation

(DRF) has made significant progress on the research fron

and is active in developing new therapeutic options in

Oncology including New Chemical Entities (NCEs), vaccines

and herbal extracts.

0

5

10

15

20

25

30

35

2002-032001-022000-011999-001998-99

Chart F : Sales Turnover per employee

(Rs. Lacs)

19

23 24

28

33

In 2002-03, Total Quality Management (TQM) techniques were

implemented on a pilot basis at two plants in the area of

statistical process control. The results have been

encouraging, and have resulted in lower rejection of raw

materials, time savings, and made the procurement processmore efficient. The Company plans to implement TQM for

other functional areas in the future. In addition, Total

Production Maintenance (TPM) measures will be initiated in

two locations in 2003-04, and we plan to make TPM an

integral part of the production processes of your Company.

This initiative is aimed at improving the productive efficiency

of capital assets.


9/13



At present, three of DRFs New Chemical Entities (NCEs) are

at the clinical trials stage. Phase I clinical trials for DRF7295

have been successfully completed, and the protocol for

Phase II clinical trial for submission to Drug Controller Generalof India (DCGI) is under preparation. This molecule is

expected to be useful for the treatment of GI Cancers more

specifically for colon, pancreatic and gall bladder where there

is an un-met need.

Phase I trials of Dabur s second molecule, TNP, a polymeric

nanoparticle delivery of Paclitaxel, initiated in the first quarter

of 2003, are scheduled to be completed in the fourth quarter

of 2003. It is a cremophor free water-soluble preparation

and is expected to have a better safety profile. The third

molecule, which is an oral anti-cancer product, is in early

Phase 1 clinical trial stage.

In addition to these molecules, which are at the clinical trial

stage, our research pipeline comprises 10 other anti-cancer

molecules, which are undergoing late pre-clinical trials. An

additional 36 molecules are at different stages of discovery,

and early pre-clinical trials.

To date, DRF has applied for 46 Pharmaceutical patents in

India, PCT countries, and US and has received approval for 21

patents. The total number of patent applications filed by DRF

is 150, out of which 90 patents have been granted so far.

As part of its research initiatives, DRF has developed

strengths in drug discovery technologies, including the design

of Novel Analogs of bioactive peptides and organic

molecules. It has also built capabilities in the design, cloning

and expression of synthetic genes, as well as in Nanoparticle

based drug delivery technology. Novel Drug Delivery Systems

(NDDS) for anti-cancer drugs are also being developed, with

special emphasis on nano-particles, and microspheres.

DRF is also active in the area of cancer diagnosis, and has

set up a Mutation Analysis Laboratory. By the third quarter

of 2003 Dabur will be in a position to offer sophisticated

gene mutational analysis for determining genetic

predisposition to breast and colon cancer.

Your Company has followed a strategy of working closely

with CSIR laboratories, government deparments, universities,

and scientific institutions on the research front. The network

of scientific collaborations has been further strengthened

and continues to be a resource to the discovery component

of the R&D.

FMCG

Conscious of its responsibility, Dabur is committed to the

well being of the environment in its quest for new and

improved products. Following are the major initiatives taken

by Dabur in the area of FMCG research and development

R&D plays an important role in new produc

development. The new toothpaste launched in

2002-03, was the outcome of Daburs in-house R&D

New product launches scheduled in 2003-04, too, are

taking place with active collaboration of R&D.

Following a government ban on the use of barks and

roots of certain trees, your Company has substituted

these raw materials with twigs and leaves, afte

adequate R&D in collaboration with All India Institute o

Medical Sciences (AIIMS).

The Company has stopped using banned plant species

and is engaged in the pursuit of developing appropriate

alternatives. These efforts are being carried out in active

collaboration with Department of Indian System o

Medicine (ISM) and Benaras Hindu University (BHU).

The agro-biotechnology division of the Dabur Research

is working on the development of modern and resul

oriented techniques for the cultivation of medicinal plants

Further work under the Plant for Life project continued

where rare and endangered plants were produced and

distributed for contract cultivation to various farming

and tribal communities. The Company established two

in-house facilities for developing nurseries and

transplanting saplings in Hyderabad and Nepal.

INFORMATION TECHNOLOGY

Dabur has been focusing on leveraging Information

Technology (IT) to achieve higher levels of efficiency. The

Company had implemented two ERP systems Baan


10/13



and Mfg Pro in production and distribution respectively.

Use of Mfg Pro gives real-time information about the

inventory and sales situation of distributors and improves

the accuracy of demand forecasts. These demandforecasts are then fed into the back-end system (Baan) for

materials planning and production scheduling. Integration

of the two systems is expected to significantly enhance

their efficiency in 2003-04.

Mfg Pro is fully operational in the zonal offices, mother-

warehouses and CFAs and Baan is already live in five

manufacturing locations. A Secondary Sales System is also

being implemented to provide countrywide information on

Secondary pipelines and sales by brand. This new Secondary

Sales System, by making focus on secondary sales possible,

has played an important role in tracking brand-wise sales,and reducing pipeline inventories.

The improvement in area-wise and brand-wise inventory

management has scaled up the entire supply chain

management through better sales forecasts, production

scheduling, materials planning, vendor management and raw

material sourcing.

A new initiative of Reverse auctioning through Freemarkets

has been introduced. Vendor management and raw material

sourcing benefited from the reverse auctioning initiative of

the Company, undertaken for saffron, Jadi Booti, and for

fixing freight rates.This will be extended to other products

in the future.

In the year under review, your Company has implemented yet

another new intiative of Claims Settlement using an Intranet/

Extranet based system, for systematic tracking and settlement

of claims. This will result in greater efficiency in managing

receivables, and speed up the process of recovery of claims.

During the year, the Company also implemented another

major initiative, Employee Management System (EMS), an

intranet based HR-information system, including Payroll and

PF processing. This system enables employees of the

Company to access details regarding their payroll and other

HR related information using the corporate Intranet.

In 2003-04, the Company plans to implement IT solution for

PF Trust Accounting, which will make management of

Employees Provident Fund more efficient. In addition, to

strengthen the supply chain further, the Company will initiate

a process of linking its important suppliers to the Company.

This will allow the suppliers to have instant information abou

the inventory levels of finished goods and production pipeline

of the Company and is expected to improve thei

procurement process and delivery of raw materials.

Daburs IT initiatives have earned it a place in the Top Ten

Technology Managers in the country by an independen

body under the auspices of Network Computing magazine

as listed in the April 2003 issue.

HUMAN RESOURCES

A Company is as good as its people, and we are privileged

to have an excellent pool of human resources working with

us. We are committed to attract, retain and reward high

quality employees with a focus on talent management. During

the year under review, the Company took the following HR

initiatives :

Function-wise and unit-wise evaluation of optima

manpower requirement in light of increased integration

of information technology initiatives such as

implementation of Mfg Pro, Baan and e-procurement

and the challenges they present for the future.

Comprehensive training and development modules have

been developed and delivered by the company for a

levels for sales and marketing employees. Employees

from other functions have been regularly provided

functional training.

Entered into arrangement with Financial Institutions to

outsource non-core HR activities of sanctioning and

administering various loans to employees at a

competitive rate.

Implementation of Employee Management System

(EMS), a comprehensive HRIS package, which also

makes available to each employee personal data and

other services. This increases the productive time o

the employees.

Streamlining of HR policies and processes to reduceadministrative time.

On the industrial relations front, relations with workers

remained cordial, and not a single man day of work was los

due to industrial action of any kind. Moreover, a long-term

wage settlement agreement was signed with the workers

union of Narendrapur plant, which puts an end to age-old

practices, which had hindered fair employment opportunity


11/13



a percentage of sales decreased from 13.3 per cent in

2001-02 to 13 per cent in 2002-03. Expenditure on

commissions, discounts and rebates came down by

7 per cent from Rs. 27 crores in 2001-02 to Rs. 25crores in 2002-03.

Pre tax profit margin (PBT/Total income) grew from 6.5

per cent in 2001-02 to 7.7 per cent in 2002-03, while

post tax profit margin (PAT/Total income) increased from

5.5 per cent in 2001-02 to 6.9 per cent in 2002-03.

Return On Capital Employed (ROCE) grew from 14.5

per cent in 2001-02 to 19.7 per cent in 2002-03, and

Return On Net Worth (RONW) grew from 16.2 per cen

in 2001-02 to 20.8 per cent in 2002-03.

Table 2 compares key financial ratios of your Company in

2002-03 as against 2001-02.

Table 2 : Key financial ratios

2002-03 2001-02

PBDIT*/Sales** 10.3% 9.2%

PBIT/Sales** 9.1% 8.6%

PBT/Total income 7.7% 6.5%

PAT/Total income 6.9% 5.5%

ROCE 19.7% 14.5%

RONW 20.8% 16.2%

Note : * does not include other income.

** Sales from operations.

Improvements in ROCE and RONW are testimony to the

Companys continuous efforts to effectively utilise its assets

In order to increase the efficiency of its assets, the Company

has rationalised unproductive capital. Consequently, tota

capital employed came down by 15.1 per cent from Rs.613.5

crores in 2001-02 to Rs.521.1 crores in 2002-03.

On the liability side, secured loans decreased by 41.6

per cent from Rs.49.7 crores in 2001-02 to Rs.29.0 crores in

2002-03 and unsecured loans reduced by 50 per cent from

Rs.163.4 crores in 2001-02 to Rs.81.0 crores in 2002-03

This has also reduced risks associated with financia

leveraging. Debt equity ratio has come down from 0.5 in

2001-02 to 0.3 in 2002-03, while interest coverage (PBIT

Interest), a measure of the Companys ability to pay interests

through its profits, has increased from 4.1 in 2001-02 to 6.6

in 2002-03.

FINANCIALS

Despite a general slowdown in the consumer goods sector

and a drought affected sluggish rural economy, your

Company has registered a 5.9 per cent growth in sales fromoperations during 2002-03 over 2001-02. Sales growth has

been accompanied by sustained improvements in operational

efficiencies, resulting in a 18.5 per cent growth in operating

profit (PBDIT less other income) in 2002-03 over 2001-02.

Reduction in interest rates, coupled with a 48.4 per cent

decrease in total debt has contributed to a 28.7 per cent

decline in financial expenses from Rs.24 crores in 2001-02

to Rs.17.1 crores in 2002-03. Sales growth, enhanced

operational efficiencies and reduced financial expenses have

translated into a 32.1 per cent growth in post tax profits

(PAT) in 2003-04 over 2001-02. Table 1 summarises Dabursfinancial performance for 2002-03.

Table 1 : Daburs abridged profit and loss statement for

2002-03 (in Rs. Crores)

2002-03 2001-02

Sales from operation 1232.3 1163.2

Other income 8.3 13.9

Total income 1240.6 1177.1

Total expenditure 1105.9 1056.6

Interest 17.1 24.0

Depreciation 22.0 21.0

PBDIT 134.7 120.5

PBIT 112.6 99.5

PBT 95.5 75.5

Current tax 7.4 5.5

Deferred tax 3.0 5.6

PAT 85.1 64.4

There are a few salient features of our financial performance,

which we would like to highlight.

Improvement in operating margins (PBDIT less other

income to Sales ratio) from 9.2 per cent in 2001-02 to

10.3 per cent in 2002-03 has been achieved primarily by

better procurement and use of raw materials. Material

cost as a ratio to sales has come down from 44.3 per

cent in 2001-02 to 42.3 per cent in 2002-03, even as there

were price increases on certain inputs.

Expenditure on advertising and publicity has increased

by 4 per cent from Rs.154.5 crores in 2001-02 to Rs.160

crores in 2002-03. However advertising expenditure as


12/13



0

20

40

60

80

100

2002-032001-022000-011999-00

Chart G : Free Cash Flow (Rs. Crores)

48.7

68.1

32.3

97.9

Table 3 : Segment-wise results (Rs. Crores)

2002-03 2001-02

FMCG

Sales 1048.5 1000.3

PAT 71.9 52.5

Capital Employed 306.6 425.0

Pharma

Sales 183.8 162.9

PAT 13.1 11.9

Capital Employed 214.5 188.5

CONSOLIDATED RESULTS

Daburs consolidated results include the performance of Dabu

India Limited, Dabur Nepal (P) Limited, Dabur Foods Limited

Dabur Egypt Limited, Dabur Overseas Limited and DabuFinance Limited. The consolidated results exclude the UK

based subsidiary, Dabur Oncology Plc, which will be spun of

with the pharma business pursuant to the demerger. This is

in accordance with AS 21 para 11, which specifies that any

investment held for the purpose of disposal or transfer may

not be consolidated. Table 4 gives consolidated results.

Table 4 : Consolidated results (Rs. Crores)

2002-03 2001-02

Net Sales from operation 1370.9 1280.9

Other income 7.2 11.9

Total income 1378.1 1292.8Total expenditure 1216.3 1148.6

Interest 26.1 33.3

Depreciation 29.3 28.7

PBT (before minority interest) 106.4 82.3

Current tax 10.3 6.8

Deferred tax 3.0 6.9

PAT (after minority interest) 91.1 66.4

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Your Company follows a strong internal audit and contro

programme. Price Waterhouse is the internal auditor for the

entire Company and its subsidiaries. The internal auditors

independently evaluate adequacy of internal controls and

concurrently audit the majority of the transactions in value

terms. The Company has an independent Internal Audi

function staffed with qualified and experienced people

Independence of the audit and compliance function i

ensured by the direct reporting of the internal audit division

to the Audit Committee of the Board.

On the assets side, the Company has voluntarily adhered to

Accounting Standard 28, resulting in impairment of fixed

assets of Rs.30.9 crores (net of deferred tax of Rs.18 crores).

The Company also witnessed a decrease in net current assetsby 25.7 per cent from Rs.260.9 crores in 2001-02 to Rs.193.9

crores in 2002-03, implying an improvement in net working

capital. Net working capital cycle improved from 82 days of

sales in 2001-02 to 57 days of sales in 2002-03 with debtor

cycle decreasing from 38 days of sales in 2001-02 to 35

days of sales in 2002-03.

However, inventory turnover increased from 50 days of sales

in 2001-02 to 53 days of sales in 2002-03. Inventory turnover

during the year have been affected by reduction in primary

sales in the last quarter of 2002-03, due to uncertainty

regarding VAT implementation. The reduction in primary

sales resulted in curtailed production. Consequently, raw

materials inventory increased from Rs.33.9 crores as on

31st March, 2002 to Rs.50.8 crores as on 31st March, 2003.

Finished goods inventory actually declined from Rs.90.7

crores as on 31st March, 2002 to Rs. 81.7 crores as on

31st March, 2003.

Reduced working capital, sales growth and higher

operating margins have translated into improved free cash

flow. Free cash flow is defined here as cash inflow from

operations less cash outflow from investing activities. Chart

G plots the free cash flow of the Company for the last

four years.

SEGMENT-WISE RESULTS

The Companys business is divided into two segments;

namely FMCG and Pharmaceuticals. The FMCG business

comprises Personal care products, Health care Products,

Ayurvedic specialities and others. The Pharmaceuticals

business consists of Allopathic, Oncology formulations and

bulk drugs. Table 3 gives segment-wise results.


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D b I di Li it d28


DE-MERGER

The Board of Directors of your Company decided to

de-merge the Pharmaceutical business (including assets) and

transfer it to a new company. The de-merger is subject toapproval from shareholders and appropriate authorities.

The proposed de-merger constitutes a significant restructuring

initiative and will provide greater focus and independence to

our two main businesses. The FMCG business, which will

remain within Dabur India, will concentrate on its core

competencies in personal care, Health care and Ayurvedic

specialities. The new Pharmaceutical company, Dabur Pharma

Limited, will focus on its expertise in allopathic, Oncology

formulations and bulk drugs.

We believe that the de-merger will represent a win-win

situation for both the Companies, and create greater valuefor our shareholders. Both these companies will have

dedicated management teams, with the freedom and

resources to pursue their independent growth strategies.

Moreover, their organizational cultures and performances will

mirror the peculiar characteristics of their respective

industries, and their performance indicators will be in sync

with those of their industries.

For the proposed Pharmaceutical company, the de-merger

will give it the opportunity to enter into marketing and

research alliances with international Pharmaceutical majors.

The FMCG company, on the other hand, will gain from greater

flexibility and dynamism in its operations, concentrated

utilisation of internal accruals and better asset utilisation.

It is proposed that the new Pharmaceutical company will be

publicly listed in the stock exchanges. The share holding

pattern of this new company will be the same as that of

Dabur India, and it has been decided that all shareholders

of Dabur India will be issued one additional share of Dabur

Pharma for every two shares held of Dabur India. The Dabur

brand name, which is a property of Dabur India Limited, will

be licensed to the Pharmaceutical company and all patents,

trademarks and brands pertaining to the Pharmaceutical

business will be transferred to the new Pharmaceutical

company. Apart from specific liabilities, general liabilities in

proportion to assets transferred will form a part of the new

companys source of funds.

THREATS, RISKS AND CONCERN

The slowdown in GDP growth in general, and the sluggish

growth of the FMCG sector in particular is a matter of

concern for us. When product categories decelerate as the

have done in the FMCG sector in the last few years

competition becomes intense, and both margins as well as

sales realizations come under pressure.

During 2002-03, growth in the FMCG sector was adversely

impacted by drought, and to a lesser extent by uncertainty

regarding implementation of VAT in the last two months o

2002-03. While we would not like to speculate about the

monsoons, it appears that confusion regarding VAT is likely

to persist in 2003-04.

The threat of counterfeit and spurious products constitutes

another risk factor. As the market leader in the Ayurveda and

herbal products market, Dabur is concerned that counterfe

and spurious products, besides directly impacting our salescould damage the credibility of the entire industry. The raw

materials for many of our finished products come from plants

and herbs. The rapid deforestation in the country has resulted

in an erosion of our raw material base. This constitutes ye

another risk factor.

OUTLOOK AND OPPORTUNITY

Notwithstanding the risks and concerns outlined above

Dabur is cautiously upbeat about its prospects in 2003-04

The proposed de-merger will create two focused and

independent companies, whose combined growth ratesshould outstrip the growth of the present Dabur India. The

Pharmaceutical companys growth should be driven by

exports, and new product launches, reorganisation of the

FMCG business units, and continued thrust on operationa

efficiencies should assist sales as well as profit growth o

the FMCG company.

CAUTIONARY STATEMENT

Statements in this management discussion and analysis

describing the Companys objectives, projections, estimates

and expectations may be forward looking statements within

the meaning of applicable laws and regulations. Actual results

might differ substantially or materially from those expressed

or implied. Important developments that could affect the

Companys operations include a downtrend in the domestic

FMCG industry, rise in input costs, and significant changes in

political and economic environment in India, environmen

standards, tax laws, litigation and labour relations.

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