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ITC is a dominant player in the domestic cigarette market. Cigarette is the largest
segment contributing 64% to overall sales. The non-cigarette FMCG business has a
16% sales share. Agri and paper businesses make up 10% and 7% of overall
revenues whereas hotel business is the smallest segment with a 3% sales share.
Dabur
With over 125 years of existence, Dabur India is the fourth largest FMCG company in
India. The company has a distinct positioning on the traditional Ayurvedic
healthcare system having presence in personal care, health care and food.
Domestic consumer care is the largest segment having 56% share in consolidated
revenues. The company has chartered growth by expanding operations in the
international markets of Middle East, Africa and Asia. In FY11, Dabur acquired Hobi
Kozmetik Group and US-based Namaste Laboratories. Currently, overseas revenues
account for 30% of overall sales. The food segment, primarily consisting of
packaged fruit juice under Real and Activ brands, contributes 11% to overall sales.
Objective
In this report we are going to analyze the financial statements of the two
companies. After thorough analysis of the P&L statements and the balance sheets of
the two companies we have compared the two on key performance indicators.
Below, we have presented four tables with three comparison parameters
i.
Equity share data
ii.
Income data
iii.
Balance sheet data
iv.
Cash flow data
Table 1:
High
Low
Dabur
317
231
ITC/Dabur
113.70%
115.90%
Rs
49
48.1
101.90%
Rs
12.3
7.1
173.00%
Rs
13.7
7.9
173.80%
Rs
8.5
2.25
377.80%
2.7
0.8
329.60%
Rs
42.2
23.6
178.50%
8,047.21
1,759.10
457.50%
x
x
6.4
25.5
5.7
38.5
112.40%
66.30%
22.9
34.8
65.90%
7.4
11.6
64.20%
Dividend payout
Avg Mkt Cap
%
Rs m
69
2,526,019
31.6
481,817
218.40%
524.30%
No. of employees
`000
25.6
6.6
386.90%
Total wages/salary
Rs m
29,466
7,948
370.70%
Avg. sales/employee
Rs Th
15,422.90
12,795.60
120.50%
Avg. wages/employee
Rs Th
1,152.60
1,203.00
95.80%
Rs Th
3,877.20
1,896.00
204.50%
Key takeaways:
i.
The companies have similar sales per share value but this should not be
taken as a prominent indicator as the two companies have astoundingly
different revenues and subscribed shares in the market
ii.
However, we can say that returns for shareholders of ITC is much higher
(73%) than that of Dabur which is a result of the aggressive diversification
strategy of the former
iii.
Despite the huge investments in launching new categories almost every
quarter ITC has a very healthy cash flow and here also it enjoys an edge of
almost 74% over Dabur which goes on to show that ITC is a really cash rich
company
iv.
ITC is marginally ahead of Dabur in price/sales ratio as ITC has few products
which are in the premium category whereas Dabur doesnt have any premium
product at all
v.
ITC has huge production facilities all over the country given its huge product
portfolio which implies that there are many factory workers and labour, which
is the highest in the FMCG industry. Thus, wages/salary ratio for ITC is the
highest in the industry
vi.
Extremely efficient operations and a very strong distribution network ensures
that ITC enjoys competitive advantage in terms of two very critical factorssales/employee and net profit/employee.
Table 2:
Income Data
Unit
ITC
Dabur
ITC/Dabur
Net Sales
Rs m
394,270
84,540
466.40%
Other income
Rs m
15,487
2,192
706.40%
Total revenues
Rs m
409,758
86,733
472.40%
Gross profit
Rs m
150,564
15,198
990.70%
Depreciation
Rs m
11,134
1,338
832.50%
Interest
Rs m
585
480
121.80%
Rs m
154,332
15,572
991.10%
Minority Interest
Rs m
-1,578
-27
5760.60%
Rs m
82
Rs m
Tax
Rs m
53,720
3,018
1780.00%
Rs m
99,116
12,527
791.20%
38.2
18
212.40%
34.8
19.4
179.60%
25.1
14.8
169.70%
Key takeaway:
As mentioned earlier that the two companies have huge differences in the scale of
operations, revenues earned which is why comparison on these parameters is not
justified. However, one must notice that ITC enjoys astoundingly high profit margins
as compared to Dabur. This is mainly due to the revenues that they earn from
cigarettes without investing almost anything in promotion and only piggybacking
the strong distribution muscle spread out across the entire country. ITCs net profit
margin is almost 70% higher than that of Dabur.
Table 3:
Balance Sheet Data
Unit
ITC
Dabur
ITC/Dabur
Current assets
Rs m
258,112
32,908
784.30%
Current liabilities
Rs m
149,451
24,699
605.10%
27.6
9.7
283.80%
1.7
1.3
129.60%
Inventory Days
Days
85
47
179.10%
Debtors Days
Days
18
35
50.80%
Rs m
182,854
19,947
916.70%
Share capital
Rs m
8,047
1,759
457.50%
"Free" reserves
Rs m
322,857
38,403
840.70%
Net worth
Rs m
339,644
41,601
816.40%
Rs m
428
3,415
12.50%
Total assets
Rs m
512,638
71,205
719.90%
Interest coverage
265
33.4
792.60%
0.1
1.50%
0.8
1.2
64.80%
19.4
18.3
106.50%
Return on assets
Return on equity
29.2
30.1
96.90%
Return on capital
45.1
35.6
126.70%
Exports to sales
7.8
2.2
348.40%
Imports to sales
3.9
1.8
221.90%
Exports (fob)
Rs m
30,579
1,882
1624.80%
Imports (cif)
Rs m
15,353
1,484
1034.90%
Fx inflow
Rs m
36,437
1,882
1936.10%
Fx outflow
Rs m
31,933
1,530
2087.00%
Net fx
Rs m
4,505
352
1280.20%
Key takeaways:
i.
ITCs ne working capital to sales ratio is higher than that of Dabur by 183.8%
which again shows the strong reserves of ITC. It is extremely cash rich like
HUL, Colgate Palmolive and Marico. But Daburs working capital is on the
lower side compared to other FMCG majors
ii.
ITC has a very efficient distribution management which ensures timely
payments from distributors and stockists and so they have a very impressive
debtor days-almost half of Dabur
iii.
Inventory cycle of ITC is 79% higher than that of Dabur but this is primarily
due to the fact that ITC is present in too many categories, some of ehich are
not very fast moving like apparels, papers
iv.
Having huge production facilities means that ITC is asset heavy and so it as a
lower sales to asset ratio as compared to Dabur but it still enjoys better
returns on assets than not just Dabur but many other FMCG players because
of the state of the art operations and efficient distribution
v.
ITC exports a lot and rightly so, given its diverse portfolio but so does Dabur
and again it would be unfair to compare the two on this parameter because
of the difference in offerings. ITC earns huge chunks of foreign exchange
which is a major contributor to its reserves. Ne foreign exchange cash flow of
ITC is next only to HUL among Indian FMCGs
Table 4:
CASH FLOW
Unit
ITC
Dabur
ITC/Dabur
From Operations
Rs m
98,782
10,826
912.50%
From Investments
Rs m
-39,657
-6,183
641.30%
Rs m
-57,692
-3,949
1461.00%
Net Cashflow
Rs m
1,434
694
206.70%
Key takeaway:
ITC is investing big, being committed to their diversification strategy and they are
also reaping benefits pretty early. The gestation periods for them are getting
reduced because of the established systems and channels over the last century.
They are enjoying phenomenal cash flows from operations, investments and regular
financial activities.
Advertising and Publicity Expenses
Dabur
Dabur India Limited spent 9.6 per cent more year on year (YoY) towards advertising
and publicity expenses (ASP) in the quarter ended 31 December, 2015 (Q3-2016,
current quarter) at Rs 350.01 crore (16.5 per cent of Consolidated Net Sales or Total
Income from Operations or TIO) as compared to Rs 319.38 crore (15.4 per cent of
TIO) and 25.7 per cent more quarter-on quarter (QoQ) than the Rs 278.42 crore
(13.3 per cent of TIO)
ITC
Indian fast moving consumer goods (FMCG), hotels, paperboards and specialty
papers, packaging, agri-business, and information technology company ITC Limited
(ITC) advertisement and sales promotion spend (ASP) in FY-2014 was 1 per cent
lower at Rs 825.81 crore (2.28 per cent of Total Revenue or TR) as compared to the
Rs 834.23 crore(2.57 per cent of TR) in FY-2013.
Thus, we see that Daburs expenditure in A & P is very high as compared to that of
ITC. It signifies the brand pull and distribution that ITC enjoys. ITCs strength has
always been its distribution muscle whereas Dabur has had to invest in channel
marketing along with the ATL campaigns. They invest a lot in BTL activities such as
ayurveda clinics in rural India. This also goes on to show that ITC, in a way is forced
to invest less due to the restrictions in marketing of cigarettes, the category which
contributes to 64% of their revenues. However, in subsequent years, with the focus
slowly shifting to food and other categories and given the aggressive product
launches, ITCs marketing expenditure is surely going to grow by leaps and bounds.
It is also worth mentioning here that it was Y.C Deveshwars vision to make grow
ITCs non cigarette FMCG portfolio into Rs. 1000 crore by 2020 which means that
the investments in advertising and promotion will also rise significantly. On the
other hand, with Patanjali going really strong it is also a given that Dabur will also
make judiciously high investments in A & P, especially in the categories of honey
and other flagship brands which are under direct threat.