Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of Dabur India Ltd (Dabur).

 

The operating performance of Dabur is expected to remain healthy, supported by its strong market position, calibrated price hikes and market share gains. Operating income grew 7.5% on-year in fiscal 2024 to Rs 12,404 crore, driven by an 8% growth in the home & personal care (HP&C) segment (constituting ~37% of overall revenue) led by the performance of its home and oral care division. Despite the foods segment reporting a double-digit growth, a weak performance from the beverage division resulted in stable revenue of its foods & beverages (F&B) segment. The international business comprising of 25% of the overall revenue grew 6.2% on year with high double-digit growth witnessed in the Middle East. Operating margin meanwhile came in stronger at 19.5% for fiscal 2024 (19.0% in fiscal 2023) due to decline in the prices of key raw materials compared to super normal growth witnessed the previous fiscal.

 

In the first half of fiscal 2025, operating income remained flat, due to one-time inventory rationalisation measures undertaken by Dabur (in the second quarter) along with subdued urban sales due to high food inflation and excessive rainfall and floods in a few regions. Dabur’s operating performance is expected to remain steady, which will be led by mid-single digit volume gains, continued traction from new product launches and expansion in the distribution network. Despite rise in marketing spends and employee costs, operating margin for the first six months of fiscal 2025 stood at 18.9%, led by moderating input cost inflation. Notwithstanding the increase in these spends, operating margin is expected to remain healthy at 19-21% through comparatively lower material costs and cost optmisation initiatives undertaken by the company.  

 

The financial risk profile remains strong, supported by healthy cash and equivalent of over Rs 6,604 crore as on September 30, 2024, excluding investments in NCDs and bonds worth Rs 1670 crore. It has low dependence on external borrowings and sufficient net cash accrual of over Rs 1,200 crore against capital expenditure (capex) of Rs 300-500 crore per annum over the medium term. Apart from this, it has announced a capex of Rs 400 crore to be incurred on a greenfield plant in Tamil Nadu, which will be funded through internal accruals. That said, any large capex or acquisition will be key monitorable.

 

In October 2024, Dabur announced its merger with Sesa Care Pvt Ltd (Sesa) for expanding its offerings in the ayurvedic hair care market. The cash payout for the deal shall remain minimal, with the acquisition of 51% cumulative redeemable preference shares (CRPS) of Sesa for Rs 12 crore prior to the merger. The acquisition of equity share capital and balance 49% CRPS of Sesa will be basis exchange of equity shares of Dabur India Ltd to be decided in due course. Sesa's enterprise value is estimated at Rs ~320 crore, which includes debt of Rs 289 crore that will be taken over by Dabur by extending a corporate guarantee. Despite this, Dabur will maintain strong financial risk profile given the robust networth and liquidity. The merger is subject to the approval of the board of both the companies and other regulatory approvals. 

 

In October 2023, Dabur announced pending litigation in the US against its three subsidiaries — Namaste Laboratories LLC (Namaste), Dermoviva Skin Essentials Inc (Dermoviva) and Dabur International Ltd (DINTL) - on allegations that the usage of hair relaxer products led to ovarian cancer, uterine cancer and other health issues among users. While the two subsidiaries viz. DINTL and Dermoviva have been dismissed as defendants in November 2023, Namaste, will continue to face charges along with other industry players. CRISIL Ratings understands that at this juncture, the outcome of this litigation is unlikely to have any material financial implications and should not have any material impact on the credit risk profile of the company as the hair relaxer portfolio of Namaste accounts for less than 1% of the consolidated revenue of Dabur. That said, any significant liability arising out of the issue will be monitorable.

 

Also, in October 2023, Dabur announced the receipt of intimation of Goods and Services Tax (GST) ascertained as being payable amounting to Rs 320 crore along with interest and penalty, which the company refutes and has challenged the show cause notice. Till date no demand notice has been received by Dabur. That said, the strong liquidity position and accruals of Dabur will help fund these potential liabilities.

 

The ratings continue to reflect the strong position of Dabur in India's fast-moving consumer goods (FMCG) industry and its healthy financial risk profile. These strengths are partially offset by exposure to intense competition.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Dabur and its direct and stepdown subsidiaries, as all the entities have common management and significant business and financial linkages.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Strong position in India’s FMCG industry

The company has established brands in the natural healthcare, personal care and food products segments. It has over ~63% market share in the health supplements segment (Chyawanprash), over ~16% in the oral care (toothpaste) segment and ~17.2% in the hair oil segment. It is the market leader (over 60% share) in the fruit juice segment, with its Real and Active brands. It is also the leader in herbal digestives and is one of the largest producers of ayurvedic drugs in India. Around 95% of its product portfolio gained market share in fiscal 2024.

 

The company continues to focus on its brands — Dabur Amla, Red, Vatika, Real, Chyawanprash, Honey, Pudin Hara, Lal Tail and Honitus. Strong market position, diverse product offerings and healthy investments in new products will drive growth over the medium term. It expanded offerings into spices segment with Badshah Masala acquisition in fiscal 2023. It continues to eye inorganic growth opportunities across categories to leverage its existing portfolio and operational synergies. On October 30, 2024, the company also announced merger of Sesa Care Pvt Ltd with Dabur, to expand into the ayurvedic hair care market.

 

Healthy financial risk profile

Financial risk profile is supported by healthy cash accrual of over Rs 1,200 crore, and robust capital structure reflected in gearing of 0.15 time as on March 31, 2024, and healthy networth of Rs 9,071 crore. Liquidity is likely to remain robust, as indicated by Rs 6,604 crore of cash equivalent and investments as on September 30, 2024. Additionally, Dabur has investments in NCDs and bonds worth Rs ~1,670 crore. The financial risk profile is expected to remain healthy and will support the yearly maintenance capex requirements of Rs 300-500 crore. Additionally, Dabur is setting up a new plant in Tamil Nadu at a cost of Rs 400 crore to be incurred over 5 years funded entirely through internal accrual. That said, any large debt funded capex, inorganic growth plans and sizeable payout as settlement will be monitorable.

 

Weakness:

Exposure to intense competition

Dabur faces competition from players in both the organised and unorganised sectors across product categories. With the growing popularity of herbal and natural products, other established FMCG players are launching similar products, exerting pressure on the market position and operating efficiency of Dabur. Additionally, Dabur will continue to be exposed to competition in various divisions with the entry of new players, including multinationals.

Liquidity: Superior

The company had investments and cash equivalent of over Rs 6,604 crore as on September 30, 2024. Additionally, it had investments in NCDs and bonds worth Rs ~1,670 crore as on September 30, 2024. Expected cash accrual of over Rs 1200 crore per fiscal will be more than sufficient to meet yearly capex of Rs 300-500 crore over the medium term along with its Rs 400 crore capex for setting up a greenfield plant in Tamil Nadu. The company is expected to pay ~50-60% of consolidated profit as dividend.

 

ESG profile

CRISIL Ratings believes Dabur’s ESG profile supports its strong credit risk profile. The FMCG sector has a moderate environmental and social impact, driven by its raw material sourcing strategies, waste intensive processes, and the direct impact on the health and wellbeing of its customers.

 

Key ESG highlights

• Dabur has made focused efforts for waste recycling. It collected, processed and recycled around 41,100 tonne of post-consumer plastic waste from all over India in fiscal 2024, thereby becoming 103% plastic waste positive.
• The company undertakes measures for water conservation and optimal use of water through reuse, recycle, treatment and discharge. For instance, the effluent treatment systems comprise an ultrafiltration and reverse osmosis process to improve the water quality to make it ready for recycling. Also, various rainwater harvesting projects have been initiated for water conservation.
• The company has implemented energy-saving and emission reduction measures to reduce energy intensity and emission footprint. Despite the energy and water-intensive nature of beverage manufacturing, it has successfully reduced energy intensity by 16% in the past three years.
• The company conducts regular awareness sessions covering safety aspects for its employees. Fire safety has been identified as a key area and efforts are underway to achieve and maintain globally approved fire safety standards at all units.
• The company’s governance structure is characterised by majority of its board (63%) comprising independent directors, split in chairman and CEO positions, and extensive disclosures. 

 

There is growing importance of ESG among investors and lenders. Dabur’s continued commitment to ESG principles will play a key role in enhancing stakeholder confidence.

Outlook: Stable

CRISIL Ratings believes Dabur will continue to benefit from its strong market position in various product categories and maintain healthy financial risk profile.

Rating Sensitivity Factors

Downward factors

• Erosion in market share in key business segments, leading to lower cash accrual
• Large, debt-funded capex or acquisition weakening the financial risk profile, with gearing increasing significantly above 0.5 time on a sustained basis

About the Company

Dabur was established by Dr S K Burman in 1884 in Kolkata. Incorporated in 1936, the company manufactures personal care, healthcare and food products. It has over 4 brands with sales of over Rs 1000 crore each, 4 brands with sales of Rs 500-1000 crore and 12 brands with sales of Rs 100-500 crore. Dabur has 14 manufacturing units across India and 8 overseas and is currently setting up a new unit in Tamil Nadu at a total cost of Rs ~400 crore.

 

In January 2023, Dabur completed the acquisition of 51% stake in Badshah Masala Pvt Ltd for Rs 587 crore. The remaining 49% stake will be acquired after 5 years. This acquisition gives Dabur entry into India’s branded spice market.

 

In October 2024, Dabur announced its merger with Sesa Care Pvt Ltd (Sesa) and entered into an implementation agreement with the shareholders of Sesa, to expand its offerings in ayurvedic hair care market. Sesa reported a turnover of Rs 133 crore for fiscal 2024. Dabur is expected to extend a corporate guarantee for loans availed by Sesa amounting to Rs 289 crore. The merger scheme is subject to approval of the Board and the regulators.

Key Financial Indicators*

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	12,404	11,541
Adjusted profit after tax (PAT)	Rs crore	1,811	1,701
PAT margin	%	14.6	14.7
Adjusted debt/adjusted networth	Times	0.15	0.14
Interest coverage	Times	33.60	33.18

 *CRISIL Ratings adjusted numbers

Any other information: Not Applicable