ITC

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

Equity Share Data

Unit
ITC
Rs
360
Rs
268

Dabur
317
231

ITC/Dabur
113.70%
115.90%

Sales per share (Unadj.)

Rs

49

48.1

101.90%

Earnings per share (Unadj.)

Rs

12.3

7.1

173.00%

Cash flow per share (Unadj.)

Rs

13.7

7.9

173.80%

Dividends per share (Unadj.)

Rs

8.5

2.25

377.80%

Dividend yield (eoy)

2.7

0.8

329.60%

Book value per share

(Unadj.)

Rs

42.2

23.6

178.50%

Shares outstanding (eoy)

8,047.21

1,759.10

457.50%

Price / Sales ratio

Avg P/E ratio

x
x

6.4
25.5

5.7
38.5

112.40%
66.30%

P/CF ratio (eoy)

22.9

34.8

65.90%

Price / Book Value ratio

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%

Avg. net profit/employee

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%

Profit before tax

Rs m

154,332

15,572

991.10%

Minority Interest

Rs m

-1,578

-27

5760.60%

Prior Period Items

Rs m

82

Extraordinary Inc (Exp)

Rs m

Tax

Rs m

53,720

3,018

1780.00%

Profit after tax

Rs m

99,116

12,527

791.20%

Gross profit margin

38.2

18

212.40%

Effective tax rate

34.8

19.4

179.60%

Net profit margin

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%

Net fixed assets

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%

Long term debt

Rs m

428

3,415

12.50%

Total assets

Rs m

512,638

71,205

719.90%

Interest coverage

265

33.4

792.60%

Debt to equity ratio

0.1

1.50%

Sales to assets ratio

0.8

1.2

64.80%

19.4

18.3

106.50%

Net working cap to sales

Current ratio

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%

From Financial Activity

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.