Dabur – The Balsara Acquisition

Group MembersSharad Kabra

Sonam Bajaj

Swati Banthiya

Tripti Sao

Dabur India Limited

Highlights (2004)

India’s 4th largest FMCG Trusted name in field of natural and herbal

healthcare worldwide Market leader in toothpowder, digestives,

baby oil and Ayurvedic Medicine Segment Unique ‘Ayurvedic Positioning’ and broad-

based brand portfolio 1.6 million retail outlets Turnover – 15.37 billion ($341 million) Good financial performance – diversified

portfolio, cost - saving procurement strategies, efficient manufacturing and procurement, export presence, tax incentives on manufacturing facilities

Journey so far…. 1884 – Birth of Dabur, Allopathic drugs business 1896 – Set up plant in Calcutta to produce chemicals and Ayurvedic

drugs 1900s – Focus on Ayurvedic medicine market – Only Ayurveda can

meet healthcare needs of poor Indian – Expansion, Dabur Research Foundation

1936 – Company incorporated as Dabur India Pvt. Ltd. Launch of several herbal products 1998 – Restructuring – Professional team inducted, Vision to become

India’s largest homegrown FMCG 2001 – Reposition brands to attract younger customers (30+ 30% of

population) , do away with umbrella branding 2003 – Pharmaceutical business de-merged to focus on core FMCG

(Dabur Pharma) 2004 – Makeover of the banyan logo – younger look, “celebrate life”

Company Profile Consumer Care Division –

healthcare, hair care, oral care, skin care

Health Care Divison - Ayurved health tonics, Child care products

Dabur Subsidies – Dabur Foods Ltd, Dabur Nepal Pvt. Ltd., Dabur International Ltd.

Dabur Pharma – Manufacture and sell branded formulations for specific diseases, Oncology section – Ayurvedic cancer drug

Export – herbals, bulk drugs, anti-cancer formulations

Balsara Founded in1925 by Rustomji Balsara

From importing and selling bathroom and lighting fixtures to household and oral care products

Pioneer in herbal oral care products – 56% of Balsara’s Revenues, Household – 44%

Also operated in high-growth Private label business – Colgate Palmolive, Smithkline-Beecham Group, Henkel Cosmetics, Reckitt Benckiser

Direct distribution reach of 340, 000, Indirect reach of 1.5 million

Fixed Asset Base – Rs 250 million, Net Current Assets – Rs 90 million, Sales – Rs 2 billion, Net Loss of Rs 0.08 billion

Turnover of Balsara BrandsTurnover (Rs

Million)  Herbal Oral Care Products (56%)  Promise 230 Unique Clove positioningBabool  500 Value SegmentMeswal 200 Premium SegmentHousehold Products (44%)  

Odonil 270

Generic name in Air freshner segment No. 2 brand after Babool, Relaunched in 2002 - 30 % increase in Sales

Odomos 230Dominant share in personal application insect repellant market

Sanifresh 110 No.  2 brand in toilet cleaner marketOdopic 140 Strong hold in Western IndiaExports (15% of Revenues) 350  Total Sales 2000  

Acquisition Deal Details Jan 2005 – Dabur announced its decision to acquire Balsara Indian group of

Companies

“Acquisition of Balsara is in line with our strategy to aggressively expand the company’s scale of operations and strengthen its presence in FMCG space”

– V.C. Burman, Chairman, Dabur India

Acquire controlling stakes in 3 Balsara Group Companies for Rs 1.43 billion (US$ 33 million)

- Balsara Home Products (100%)

- Balsara Hygiene Products (99.4%)

- Besta Cosmetics (97.9%)

All-cash deal - Funds for acquisition – Rs 1.3 billion liquid investments of Dabur as on Dec 2004 and Debt worth Rs 200 million (6% of shareholder funds) – Small impact on Dabur’s equity base

Synergies Balsara’s oral care product basket fit well with Dabur’s portfolio – strong herbal

association – Increase market share

Oral care health industry – Rs 25 billion market, growth – 10% p.a., Home care – Rs 20 billion market

Easy entry into household care category – Opened new avenues of growth in Niche segments – less competitive pressure in this market compared to toothpaste and shampoo segments, less pricing pressure – higher margins, superior growth prospect on account of low penetration levels

Acquired manufacturing facilities in Himachal Pradesh (Baddi), Gujarat (Silvassa) and Uttar Pradesh (Kanpur)

Baddi plant - Tax and excise duty concessions for first 10 years years, close to Daburs HQ

Meet cost of acquisition from 1 year’s operating cash flow

Leverage strength in Ayurvedic healthcare products

Wanted stronger hold in toothpaste market – margin in toothpaste market higher than toothpowder market

Acquisition of Balsara brands gave a sizeable toothpaste portfolio – No.3 position in Toothpaste category (after Colgate and HLL) at par with domestic players – Anchor and Ajanta

Human capital - Skills and expertise of Balsara employees, Recruitment costs came down across the group – Balsara people helped fill vacancies in group companies

Dabur Lal DantmanjanRs 1.5 bn - Leading brand in toothpowder market, 30% market share

Dabur Red tootpaste 1.8% market share in toothpaste category

Binaca Toothbrush Binaca toothpaste did not do well 

Problems with Balsara Intense competition from big players with huge advertising and

marketing expenditure

Pricing pressure – price undercutting - Multinationals strategy to gain lost market share from local player

Overstaffed, operational inefficiencies, poor advertising

(In Rs Million)

2003-04 2004-05

Sales 2000 1500

Net Profit (80) (300)

Turnaround Strategy“There were no big surprises. We knew what was wrong and how to

set it right”

- P.D. Narang, Group Director, Dabur

Target sales (2005-06) – Rs 1.8 billion Break-even by 2006-2007 Focus on operations, people and marketing

PeopleDabur Balsara

Number of Employees 2300 600 -300 people left citing locational constraints – lose skilled and experienced manpower

R&D Team No experience in home care Invaluable contribution in oral care research division - Complemented with Dabur’s team

Manufacturing No union No union, Silvass plant overstaffed – shifted to Baddi unit, Close down Kanpur facility (10 workers)

Sales – target of Rs180 crore of extra turnover, distinct distribution network

Outcome- Wage bill for 2005-06 -50% lower than 2004-05 – save in staff expenses, low recruitment costs

Line 1 – healthcare, Line 2 – personal care , Consumer care frontline – 400 people (20 from Balsara)

Add Line 3 (Balsara and Dabur products)- home care and oral care products – re-training in selling techniques – “train the trainer” module, Salaries hiked to bring in line with Dabur structure, External consultants hired for assessment of employees

Operations

Balsara’ Operational Inefficiencies

Wastage – 30 million per year Absence of standard operating procedure Lax inspection procedure Sub optimal factory layouts- too many buildings

Changes brought by Dabur

At manufacturing plants: Kanpur- converted to C & F Agency Silvassa- manufacturing only for Balsara private label brands and Dabur International Baddi - upgradation of quality and sourcing facilities

Purchasing E- sourcing instead of direct negotiations (Ariba system) Economies of scale

Dabur’s Manufacturing Plants after acquiring Balsara

Marketing StrategyEmphasis on home care products being

high margin, high growth products.Reviving Balsara’s oral care brands-

1. Meswak- price cut , advertising

2. Babool- new positioning

Consolidated distribution network

Dabur Balsara

Regions Covered North and East West and South

market type Rural Urban

density 1-5 lakh 5000

Advertising Strategy

Hygiene products: Brand ambassador for oral care products: Vivek Oberoi

Dabur logo on Balsara oral care products

TV Commercials for Odonil and Sainifresh

Home Care Products: Independent of Dabur

Innovative marketing strategies for Odomos

Promotions: Sample distribution to consumers

Effect on stock price on announcement of Merger

Post-mergerBalsara home product profits- 11 million in Q1,

FY 2006

Turn over up by 52%

Oral care range up by 32%

Home care division up by 120%

Dabur’s plan for futureDoubling of sales of Babool within next 2 years

Promotion of Meswak and Promise

Extensions, variations and new product launches to existing categories

Entry into new categories in OTC healthcare, skin care and household products

Increasing presence in South India

Cost of Acquisition70 % of the Brands Combined Revenue Similar FMCG deals – paid over twice a

brand’s revenue – good deal cracked by Dabur !!!!!

Why did Balsara agree for this deal ????

Thank you