Dabur: A Unique play on Ayurveda!
Dabur is India’s largest Ayurvedic and natural products company. It was founded in 1884 by a physician, Dr S.K. Burman. The name ‘Dabur’ is derived from Daktar Burman. Dabur offers a unique proposition due to its ability of bringing ‘branded’ ayurvedic products to consumers in a modern way.
Beginning as a small scale ayurvedic medicine manufacturer, today, Dabur is one of the largest fast-moving consumer goods companies in the country and is one of India’s very own MNC’s with exports to over 100 countries.
Its businesses can be categorized as:
- Health Care (44% of Total Sales)
- Health Supplements – Dabur Chyawanprash, Dabur Honey
- Digestives – Pudin Hara, Hajmola
- OTC & Ethicals – Dabur Lal Tail, Dabur Honitus
- Home & Personal Care (45.1% of Total Sales)
- Oral Care – Dabur Red, Meswak, Babool
- Hair Oils – Dabur Amla Hair Oil, Vatika
- Shampoo – Vatika
- Home Care – Odonil, Odomos
- Skin & Salon – Fem, Oxy Bleach, New range of sanitizers
- Foods (10.9% of Total Sales)
- Beverages – Real Fruit Juice
- Culinary – Hommade
Dabur has 12 domestic manufacturing facilities and 8 international manufacturing facilities. It derives around 28% of its total business from International operations (primarily MENA, Nepal, and Bangladesh).
Dabur has 9 ‘Power Brands’ that generate over 70% of total sales. Most of them have been in existence for over 2-3 decades at the very least. Dabur’s relentless focus on promoting and leveraging these power brands has led to significant market share gains. By augmenting product lines with newer variants and SKUs, the company bolsters its brand equity while catering to the ever-changing needs of consumers. Heavy marketing and advertisement spend along with modern packaging further boosts these efforts.
- Dabur Chyawanprash
- Launched first variant in 1949.
- Market leader with 60%+ share.
- Further market share gains to be attained by increasing penetration in households, expanding chemist network, and attempting to boost consumer’s usage frequency.
- Dabur Honey
- Market Leader.
- Gained over 7% market share in the latest quarter.
- Dabur Lal Tail
- Market leader in baby massage oils.
- Expects to grow the baby care product range by leveraging this power brand.
- Dabur Honitus
- Cough and Cold Ayurvedic medication.
- Dabur Pudin Hara
- Ayurvedic medicine for Gas, Acidity, and Indigestion.
- Seeing robust growth.
- Dabur Red Toothpaste
- Launched in 1995.
- One of the fastest growing toothpastes in India.
- Preceded by Lal Dant Manjan (1970) which was a toothpaste powder.
- Gaining market share.
- Dabur Amla Hair Oil
- Launched in 1940.
- Largest selling hair oil brand in India and in key international geographies.
- Market leader in overseas markets, majority of Vatika’s sales currently come from overseas.
- Expects to boost presence in the domestic market.
- Real Fruit Juice (1997)
- Fastest growing fruit juice brand.
- Expects to extend product line.
Visit https://www.dabur.com/in/en-us/product to know more about their brands!
Economic Moats & Competitive Advantages enjoyed by Dabur:
Unique Offerings and Strong Brand Equity
Dabur is India’s largest ‘branded ayurvedic’ company with a vast plethora of unique offerings. It is a pure play FMCG company and does not sell ‘ayurveda as a medicine’. This differentiated offering separates it from the likes of medicinal ayurvedic companies like Baidyanath, Himalaya, and Sandu. Its closest competitor would be Patanjali Ayurveda. However, Patanjali Ayurveda seems to have overdiversified and lacks power brands. Hence, it can be said that Dabur and Patanjali have a different value chain even though they operate in the same ‘ayurvedic’ segment.
Dabur has leveraged the ‘India’ and ‘Ayurvedic’ play incredibly well and has built a sustainable brand equity around it. Considering their streamlined focus on promotion and development of ‘power brands’, Dabur is well poised to grow going forward. It is likely that Dabur will find better acceptability in the modern consumer due to rising preference for ‘healthy’ yet ‘branded’ products.
Economies of Scale
Being the largest company of its kind with strong consistent demand for its products allows the company to take advantages of economies of scale. Dabur’s products are meant for general use and hence demand tends to be steady (Dabur, Emami, and Baidyanath together account for 85% of the Ayurvedic products market).
Wide Distribution Network and Adaptable Operations
Dabur breaks down its domestic operations into 12 distinct geographical clusters. Using advanced data analytics tools, the consumer preferences and demand patterns in these clusters are identified. Accordingly, it optimizes its manufacturing schedules and supply chains. This ensures optimal product stocking in stores thereby increasing sales.
Dabur’s adaptability shone during the pandemic as it was able to overcome logistical, labor, and raw material hurdles. Expecting the health care segment to fare strongly, it quickly laid emphasis on the segment by ramping up manufacturing and procuring raw materials from new third-party vendors (due to supply chain constraints). Dabur tied up with newspaper agencies, Dunzo, Zomato, and Swiggy, to ensure better product delivery at retail outlets.
Risks faced by Dabur:
Intense competition in certain product segments
While the presence of ‘Power Brands’ ensures large market share, it doesn’t provide permanent protection against competition. Hence, heavy reinvestment in advertising and marketing is required to maintain market share. Some product segments such as honey, toothpastes, and fruit juices face intense competition from other well entrenched FMCG companies as well as regional players. Considering the attractiveness of ‘ayurvedic and herbal’ products, other competent players are launching competing products, and this could be a key risk going forward.
The presence of counterfeit products can erode brand equity quickly and drastically. Dabur intends of staying ahead in the game by constantly releasing newer packaging and backing it up with synonymous advertising.
Dabur generates roughly 28% of its total turnover from its international operations thereby exposing them to exchange rate fluctuations in the underlying currencies. It does undertake hedging practices to mitigate this risk from time to time and is working on local procurement of raw materials. This is a more sustainable approach towards dealing with the underlying currency risk.
Raw Material Risk / Inflation Risk
Dabur relies on a large variety of raw materials for their operations. While they do have significantly strong and healthy relationships with their suppliers (farmers, villagers, and tribal communities – that undertake farming of required herbs etc), this does not protect them from inflationary pressure. Hence, high inflation and high input costs could dampen margins. The company has already undertaken price hikes in some of their products due to rising input costs.
Luckily for Dabur, their products tend to be non-discretionary in nature and hence they are not too susceptible to downturns.
Growth & Opportunities:
- Large increasing population with favorable demographics.
- Increasing awareness and acceptance of ‘Ayurvedic’ products for general healthcare purposes.
- Relatively underpenetrated sub-markets offering plentiful headroom for growth.
- Strong established foothold in international markets whilst maintaining the power brand architecture.
- Introduction of low-priced packs of products to target rural markets.
Dabur is a near debt-free company with relatively stable performance and strong free cash flow generation ability.
I believe that Dabur should be able to grow reasonably well in the near future whilst maintaining stable margins of about 17%-21%.
(I have been quite optimistic yet reasonable with my narrative for Dabur.)
My intrinsic valuation of Dabur works out to INR 201.39 to INR 221.47 which is well below the current market price of INR 520.
Based on my narrative, Dabur seems to be overvalued by 158% and 135% respectively. I do not find this surprising. The FMCG sector is considered as a ‘defensive’ sector. Most FMCG companies have incredibly stable cash flows regardless of the macroenvironment. Due to their reliable and steady cash flow generation ability, these companies generally trade at exorbitant valuations when compared to their intrinsic value!