What Does Working Capital Management Mean?

A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Read more: [Link] Investopedia explains Working Capital Management Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management. Read more: [Link] Working capital (abbreviated WC) is a financial metric which represents operating liquidityavailable to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

Net Working Capital = Current Assets Current Liabilities Net Operating Working Capital = Current Assets Non Interest-bearing Current Liabilities Equity Working Capital = Current Assets Current Liabilities Long-term Deb
A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

Calculation
Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

accounts receivable (current asset) inventory (current assets), and accounts payable (current liability)

The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. An increase in working capital indicates that the business has either increased current assets (that is has increased its receivables, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors. Implications on M&A: The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment mechanism in a sale and purchase agreement) is equal to: Current Assets Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or deposit balances. Cash balance items often attract a one-for-one purchase price adjustment. [edit]Working

capital management

Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and itsshort-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. [edit]Decision

criteria

By definition, working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability.

One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making. See Economic value added (EVA). Credit policy of the firm: Another factor affecting working capital management is credit policy of the firm. It includes buying of raw material and selling of finished goods either in cash or on credit. This affects the cash conversion cycle.

[edit]Management

of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cashand cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow. Besides this, the lead times in production should be lowered to reduce Work in Progress (WIP) and similarly, the Finished Goods should be kept on as low level as possible to avoid over production - see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic quantity Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); seeDiscounts and allowances. Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier;

however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

Management Discussion and Analysis

INDUSTRY STRUCTURE AND DEVELOPMENTS
The year 2004-05 has been a year of sustained growth for the economy as well as for your Company. The year saw a revival in the FMCG sector which emerged from a phase of sluggish demand to report strong growth in most consumer categories. In 2003-04, we had seen that while the Indian economy grew by a remarkable 8.5 per cent, the FMCG sector continued to remain sluggish. In last years Annual Report, we had pointed out that one good year was not sufficient to improve consumer confidence and improve the fortunes of the FMCG sector. We felt that it needed a few consecutive high growth years to sustain economic development and increase demand for FMCG products. With the economy growing by 6.9 per cent in 2004-05, we have witnessed two successive years of impressive income growth with per capita income increasing by 7.1 per cent in 2003-04 and by 5.2 per cent in 2004-05. This growth in incomes has contributed substantially to a sharp turnaround in the FMCG sector (see Chart A). It is important to realise that this years revival in the FMCG sector has been largely volume driven, with improved offtake in urban as well as rural areas. The volume growth has also been accompanied by a degree of price stabilisation, especially after a couple of years of fierce price competition in some FMCG segments. Companies have had to reposition brands, create niches for their products and improve distribution systems to make the best out of the opportunities offered by an improved market environment. Through a structured implementation of strategic initiatives over the last couple of years, Dabur had geared itself for the challenges thrown up during the year. The Company had already positioned itself on the herbal specialist platform to create a niche within the FMCG space. Even before 2004-05, a robust brand architecture with five umbrella brands was put in place with a well-calibrated mix of products under each brand. On the distribution side, the process of streamlining of the sales organisation had begun a couple of years ago. This was further consolidated during 2004-05, which helped the Company penetrate much deeper into semi-urban and rural markets and tap into the demand growth in these areas. On the costs side, there has been a growing concern of escalating input cost especially of oils, packaging materials and transportation. Chart B shows that WPI-based inflation increased from 4.8 per cent at the beginning of 2004-05 to levels above 8 per cent during September 2004, and remained above 5 per cent for most of the year. Competitive pressures prevented all FMCG companies from passing on these cost increases to customers. Therefore,

for the industry as a whole, margins were under some pressure. Source: ORG MARG, based on sales value
10 Dabur India Limited Management Discussion & Analysis

Chart B: Inflation (WPI) To mitigate the cost push effects, Dabur has developed an optimal mix of manufacturing facilities at different locations to reap maximum benefits from fiscal concessions and economies of scale. In addition, further efficiencies in the supply chain right from procurement to production helped to cap input costs. These operational factors coupled with good sales growth helped the Company generate impressive profits and return to investors. The highlights of Dabur India Limiteds performance in 2004-05 are: Revenue from operations increased by 10.5 per cent from Rs.1147.9 crore for 2003-04 to Rs.1268.7 crore in 2004-05 Operating profit (EBIDTA) increased by 36 per cent from Rs.138.2 crore in 2003-04 to Rs.187.9 crore in 2004-05 Interest outgo decreased by 38 per cent from Rs.6.9 crore in 2003-04 to Rs. 4.3 crore in 2004-05. Profit after tax (PAT) increased by 46.3 per cent from Rs.101.2 crore in 2003-04 to Rs.148 crore in 2004-05. Return on capital employed (ROCE) increased from 34.9 per cent in 2003-04 to 38.7 per cent in 2004-05 Return on net worth (RONW) increased from 38.6 per cent in 2003-04 to 44.5 per cent in 2004-05 To enhance the perception of Dabur as a contemporary organisation one that is in tune with customer needs the Company launched the new identity of its flagship brand Dabur during 2004-05. While leveraging Daburs 100 year old brand equity by retaining the essence of the banyan tree, the new brand identity projects a more modern image in consonance with todays lifestyle. The new visual identity expresses a brand that is dynamic, proactive and progressive. These characteristics are not limited to perception building exercises but are integral to Daburs pursuit of profitable growth. The Companys growth in 2004-05 was fuelled by launching new products, entering new categories, spreading its geographical reach and growing its relatively smaller product portfolios like foods. While the parent company Dabur India Limited (DIL), continues to be the driving entity operating in the herbal specialist space in India, the food business is undertaken by DILs subsidiary company Dabur Foods Limited (DFL). The international business is carried out by the Dubai based subsidiary, Dabur International Limited. Going forward, it is important to look at Daburs business on a consolidated basis, as the future business plans will involve Dabur India Limited and all its subsidiaries, working as a cohesive unit. The highlights of the Companys consolidated financial performance are: Consolidated Net Sales from operations increased by 15.6 per cent from Rs.1329.6 crore in 2003-04 to Rs.1536.9 crore in 2004-05 Consolidated Profits after tax (PAT), after accounting

for minority interests, increased by 46.3 per cent from Rs.106.5 crore in 2003-04 to Rs.155.8 crore in 2004-05 We have always maintained that while organic growth is the focus area, we would be always open to value enhancing inorganic growth opportunities. The Company had accumulated significant cash reserves over a period of time which needed to be invested judiciously; Dabur was, therefore, on the lookout for good acquisition opportunities. In 2004-05, the Company found a good value proposition and undertook its largest acquisition till date, by acquiring
Annual Report 2004-05 11

Balsaras hygiene and home products business in an all-cash deal. The Board of Directors of Dabur India Limited approved of this deal in its Board meeting held on 27 January, 2005, and the acquisition of shares took place on 1 April, 2005, after obtaining shareholders approval. As part of the deal, Dabur has acquired the entire promoters stake in three Balsara companies: 99.4 per cent in Balsara Hygiene Products; 100 per cent in Balsara Home Products; and 97.9 per cent of the shareholding in Besta Cosmetics Limited. The cost of all three taken together has been Rs.140 crore. The acquisition was largely funded through internal accruals - out of the Rs.140 crore investment, only Rs.20 crore was funded through debt. The Balsara acquisition would add sales turnover of approximately Rs.200 crore to Dabur and brings with it three manufacturing facilities located at Silvassa, Kanpur and Baddi. It operates in three business segments, with unique positioning in each: Oral Care: With its clove oil based Promise toothpaste, Balsara was a pioneer in herbal oral care products in India. Balsara also has a strong presence in the value segment with Babool toothpaste and in the premium segment with Meswak toothpaste. Taken together, the Balsara oral care brands hold around 4.5 per cent share of the toothpaste market. Household Care: In this segment, too, Balsara has entrenched brands. Odonil is almost a generic name in the air freshener segment; Odomos has a dominant share in the personal application based insect repellents market; Sanifresh is the second highest selling toilet cleaner in India; Odopic, which is a dishwashing and surface cleaner has strong brand equity in western India. The category market size is estimated to be Rs.2,000 crore, and has extremely attractive growth opportunities given its current low market penetration levels. Contract Manufacturing: This includes the private label and herbal extracts and complexes business catering mainly to the international market. There were several reasons for Dabur to believe in the value proposition that Balsara business offers. First, its oral care business fits well with Daburs herbal positioning and will allow the Company to offer a range of strong products

across different price points in this segment. Second, the household care products will allow Dabur to expand into a new product category that has very low penetration levels and high growth potential. Third, the combined entity can reap greater benefits from economies of scale and scope in terms of advertisement expenses, synergies in marketing, sales and distribution and greater utilisation of backend services. Fourth, in terms of geographies, Balsaras strength in the West and the South complements Daburs strength in the North and East India. Given these factors, Balsara has a strong strategic fit with Dabur, and we believe that the acquisition will generate positive gains for the Balsara business as well as the consolidated entity and will prove to be a value enhancing initiative. In the following sections we look at the developments in Daburs different businesses in India and abroad.

SEGMENT-WISE AND PRODUCT-WISE PERFORMANCE

Domestic FMCG Business
In India, the Companys business is carried out by three divisions Consumer Care Division (CCD), Consumer Healthcare Division (CHD) and the wholly owned subsidiary Dabur Foods Limited. On a consolidated basis CCD contributes 82 per cent, CHD contributes 8 per cent and DFL contributes 10 per cent to the Companys domestic revenues. While CCD remains the leading division and a focus area, during 2004-05 the Company undertook several initiatives to consciously grow the smaller divisions CHD and Foods. These divisions, with relatively smaller sales bases, are seen as key drivers of future growth.
12 Dabur India Limited Management Discussion & Analysis

this exercise by developing new products and packaging which are customised to the distinct tastes and needs of the South Indian consumer. The South India initiative has begun to pay dividends as sales in the region grew by 23.6 per cent during 2004-05, and its contribution to CCD sales increased from 7.1 per cent in 2003-04 to 8.2 per cent in 2004-05.

Hair Care
Hair Care, which is the largest category in Daburs CCD portfolio with a 38 per cent share, registered a growth of 11 per cent during 2004-05. From a market perspective, the two groups of products in this category hair oil and shampoos witnessed diametrically opposite market movements. While in hair oils the market grew faster in value terms compared to volumes, in shampoos, the value growth was far less than that of volume. This development in shampoos was a direct fall-out of fierce price based competition in the first half of 2004-05. In the latter half, there has been an element of price stabilisation with all FMCG companies repositioning their products in new price segments and consolidating their presence. In hair oils, Dabur Amla hair oil grew by 15.9 per cent during 2004-05 in value terms, and net sales crossed Rs.200 crore.

During the year, the brand communication for this product was transformed from being a purely functional one, to a more evolved and trendy message. Vatika hair oil registered double digit growth, with sales value increasing by 13.1 per cent in 2004-05. The product increased its market share in the hair oil category from 6.9 per cent in 2003-04 to 7.6 per cent in 2004-05. Dabur continued to promote this brand with its concept of Vatika Women. The Superbrand Council of India acknowledged the strength of the Vatika brand and it was adjudged as one of the 101 super brands in India. There has been a concerted effort to develop the Anmol brand on the economy platform across product categories. Under this, your Company had made an entry into the large mustard oil market with its branded hair oil offering Anmol Sarson Amla Hair oil. In its first full year in the market

Consumer Care Division

The FMCG business of the Company is housed in this division and offers a wide range of products in hair care, oral care, health supplements, digestives and candies, and baby and skin care. Chart C gives the relative contribution of these categories to total sales of the Consumer Care Division. Chart C : Category Contributions CCDs net sales increased by 8.9 per cent from Rs.1,001.2 crore in 2003-04 to Rs.1089.9 crore in 2004-05. A number of new products in various categories have been launched in the last couple of years. Many of these products had the first full year of marketing during 2004-05 and were the prime drivers of growth. Sales of new products accounted for over Rs.75 crore in 2004-05, which was around 8 per cent of the total sales of the division. The CCD brands continued to get support from aggressive advertisement campaigns. While celebrity film stars like Amitabh Bachchan and Rani Mukherji continue to endorse Daburs brands, the company signed on cricketer Virendra Sehwag to be an ambassador for select brands. During 200405, the company rolled out a focused plan to develop its south Indian markets, where it had been comparatively weak. A core group under a new marketing head has been set up to push this initiative. The Company is supporting
Annual Report 2004-05 13

during 2004-05, the product has shown good growth prospects. In line with the price rationalization that happened in the shampoo category, the Company repositioned some of its offerings and reduced prices in products such as Vatika Henna Cream Shampoo. As a result, while Daburs shampoos registered a 14 per cent growth in volume terms, its value growth was restricted to 0.4 per cent in 2004-05. The newly launched Dabur Anmol shampoo range enabled the Company to gain entry into the economy segment of the shampoo market.

Health Supplements
This category recorded a growth of 2.4 per cent for 2004-05. Growth was impacted in the second half of the year largely due to the country experiencing a delayed and shortened

winter thus adversely affecting off-take of the flagship product in this category Chyawanprash, which experienced marginal decline in sales. The Chyawanprash market as a whole declined by 5.7 per cent during 2004-05. The Company is in the process of rolling out strategies to expand the usage of Chyawanprash. The brand Dabur Chyawanprash bagged the Brand Relaunch of the Year award at the first Indian Marketing Awards (IMA) held in October 2004. The growth driver in this category was Dabur Honey, which grew by 24.6 per cent in value terms. This brand has been seeing strong growth due to focused marketing and advertising support and increasing usage of honey in food preparations. Sales of Dabur glucose remained stagnant during 2004-05. An aggressive consumer promotion has been initiated for this brand supplemented by a new advertisement campaign. In order to drive growth in Health Supplements category, your Company has planned to introduce a unique and differentiated product in Herbal Nutritional Supplements category. This product is being test marketed in some select markets. The Nutritional Supplements category is a large consumer category in which Daburs healthcare and herbal equity fits very well and it offers significant growth potential.

Oral Care
Sales of Daburs Oral Care products increased by 10.1 per cent. This growth has been driven by wide acceptance of the Dabur Red Toothpaste franchise, which was in the second year of its launch. Sales of Dabur Red Toothpaste increased by over 100 per cent and reached Rs.49.7 crore in 2004-05. In toothpowders, where Dabur has been a dominant player, sales were under stress due to a 7.0 per cent decline in the entire category. During the second half of the year, Dabur aggressively pushed this product with a new advertisement campaign featuring Virendra Sehwag. This helped the company strengthen its position within the category and increase its market share from 30.1 per cent in 2003-04 to 31.7 per cent in 2004-05. However in the near term, it is the toothpastes that are poised for good growth. With the Balsara acquisition, Dabur has strengthened its position in toothpastes, and now has a robust set of offerings across different price points. While Babool will be positioned in the economy segment, Dabur Red toothpaste will be positioned in the mid-priced segment and Meswak in the premium segment. Another Balsara product Promise toothpaste, which is in the same price band as Dabur Red Toothpaste, will be positioned under the white toothpaste platform, and its international brand equity will be leveraged for exports.

Digestives and Confectionery

During 2004-05, this category recorded a growth of 2 per cent. While Hajmola tablets registered a 9.1 per cent growth in 2004-05 with the roll out of a new packaging and advertisement campaign, sales of Hajmola candy decreased

by 3.3 per cent in 2004-05. The Company has taken steps to revive the sales of Hajmola candies, which includes re-launch of the product in a smooth format with a more contemporary packaging. The re-launch was done in West Bengal and Maharashtra, and will be extended nationally in the first half of 2005-06.
14 Dabur India Limited Management Discussion & Analysis

The focus on newer formats of Hajmola continued with launch of an improved goli format of Hajmola Anardana. A further extension of the Hajmola brand has been planned with the launch of Hajmola Yumstick, which is a paste in a stick format and comes in two ethnic flavours imli (tamarind) and aam (mango). Sales of Pudin Hara liquid recorded good growth but due to decline in the Pudin Hara pearls, the overall brand remained stagnant.

Skin Care/Baby Oils

This is the smallest category in CCDs portfolio in terms of size of sales, but in terms of growth this has been one of the leaders, with sales increasing by 13.1 per cent during 2004-05. Most of this growth was fuelled by expansions in skin care products. Within skin care, Gulabari grew by 21.7 per cent in 2004-05. The fairness platform has also paid rich dividends as seen in the 50 per cent growth in Vatika Fairness Face Pack. The Company has made further inroads into skin care area through test marketing of Dabur Anmol Cold Cream and a test launch in West Bengal of Vatika soap with saffron and honey. Herbal soaps is another area where the equity of Vatika brand can travel seamlessly to command a niche position, therefore the Company has decided to make a calibrated entry into this category. In baby care, Dabur Lal Tail registered a growth of 9.5 per cent in 2004-05. The high quality of this product was further endorsed by the fact that it was the only baby oil that passed FDA scrutiny in the test which was conducted on all leading brands of baby oils in Maharashtra.

Consumer Healthcare Business

Consumer Health Division
The Consumer Healthcare Division (CHD) portfolio comprises of pure grantha based products on the Ayurveda platform, which can be broadly classified into OTC products, branded ethical and generics including Asavs and Classicals. This business includes popular products such as the OTC Asav tonic brands of Dashmularishta and Ashokarishta and advertised brands such as Dabur Shilajit, Naturecare, Shankhpushpi, Honitus and Ring Ring among others. During 2004-05, this divisions sales increased by 12.4 per cent from Rs. 95.9 crore to Rs.107.8 crore, thus breaking the Rs.100 crore barrier for the first time. This growth has been fuelled by strong performance of brands like Shilajit, Shankhapushp Syrup, Nature Care and Ring Ring. This business is woven around the Ayurveda segment and therefore, given the strong Ayurvedic origins of Daburs equity, constitutes a major focus area for the Company. The Consumer Healthcare activity has been identified as

one of the growth drivers of your Companys business going forward. The increasing preference for holistic health remedies as offered in Ayurveda is leading to a sustained growth in the Natural/Herbal segments. Your company plans to lead this growth. In order to develop this division in a focused manner, the Company undertook a major organisational restructuring. This included the appointment of senior professionals with wide experience in the FMCG and Healthcare industry. Concurrent with these structural changes, the division has formulated and will implement a synergised business roadmap during 2005-06. This strategy stresses on taking quantum jumps in growth and is centred around two distinct groups of products that are at two different ends of the divisions product portfolio the classical grantha based business and the OTC route. On the branded ethical side, the strategy focuses on marketing Grantha based products, which are safety and efficacy driven. Your Company undertakes extensive clinical trials for most of its products so that the products are tried and tested before actual use. Your company has a strong research and development infrastructure comprising about 20 dedicated scientists who are working on developing and strengthening the Ayurvedic platform scientifically. Apart from this, the Company is associated with the Dabur Dhanwantary Foundation in Chandigarh and several other regional hospitals for promoting education and R & D in the field of Ayurveda.
Annual Report 2004-05 15

Building a world class OTC capability is central to the development of this division. The aggressive OTC strategy is based on connecting customers with Ayurveda using various elements of the media, doctors and pharmacy promotions. The idea is to strengthen relationships with Ayurveda market stakeholders in other words, not just penetrate the market but also redefine and grow it. This initiative is being supported by aggressive advertising of several products like Honitus and Nature Care. In 2004-05, Dabur Dashmularishta became the first branded ethical Asav (tonic) to be advertised on television. Marketing activities continue to focus on increasing endorsement from healthcare professional (BAMS and Vaids who prescribe Ayurvedic medicines), developing pharmacy selling, increasing the effective coverage in urban pharmacy supported by focused media thrust. On the distribution side, territories have been restructured and additional manpower deployed wherever necessary. To build effective coverage, your Company has strengthened the number of retail sales force personnel and also stockist networks. In 2004-05 CHD acquired the brand Honitus from de-merged Dabur Pharmaceuticals Limited. This cough syrup, which has an Ayurvedic base, was earlier sold through the prescription route. Now this is being sold over the counter (OTC). Daburs Consumer Healthcare business continues to be open to further opportunities for acquisitions and partnerships in India and abroad and is strategically poised for good growth.

Foods Business
Dabur Foods Limited
Dabur India Limiteds wholly owned subsidiary, Dabur Foods Limited (DFL) operates on the naturals platform with a product portfolio consisting mainly of fruit juices, cooking pastes, sauces and items for institutional food purchases. The business sales grew by 51.2 per cent from Rs.85.8 crore in 2003-04 to Rs.129.7 crore in 2004-05. The primary growth driver in this business were its two fruit juice brands Real and Real Activ which, taken together, recorded an impressive growth of 38.5 per cent. During the year the Company repositioned its offerings to put in place a well segmented product strategy. The Company, now has three distinct brands across the fruit juice category : Real, Real Activ and Coolers. The Activ range of juices, which have no added sugar, cater to the health conscious young adults in the premium segment. Activs new identity, which has now become distinct from the Real brand, has been brought out in its new contemporary and trendy packaging. The Activ range now has five flavours including the two new additions Mixed Fruit Cucumber Spinach Juice and Mixed Fruit Beetroot Carrot Juice. In order to target the 18 to 35 age group the smaller packs of Activ have been enlarged from 200 ML to 330 ML, which is a more appropriate quantity for a person of this age group to derive nutritional value from a single drink. Real continues to be DFLs offering for the medium segment with growth thrust provided by continuously launching new flavours. The economy end of the portfolio consists of Coolers. These drinks are based on traditional Indian formulations, which have a cooling effect on the body. They were launched in 2004-05 in 3 flavours Watermelon, Pomegranate and Aam Panna. The Company intends to aggressively promote this brand and also introduce new flavours in 2005-06. The Hommade brand grew by 31 per cent in 2004-05 with good growth in Coconut Milk and Tomato Puree. Apart from these, the brand also offers a range of cooking pastes, and has recently test marketed a soup concentrate, which shall be launched nationally during 2005-06. Institutional sales contribute around 25 per cent of Dabur Foods turnover. The company intends to bring in more products in this distribution system. A separate brand called Natures Best has been created for institutional sales and it consists of products like ketchup and corn powder. There was impressive growth in sales of honey to institutions, which is done in special one kg packs.
16 Dabur India Limited Management Discussion & Analysis

care products. Dabur Internationals subsidiary in BangladeshAsian Consumer Care Private Limited recorded sales of Rs.10 crore in 2004-05, its first full year of operations. Operations in the Nigerian plant began during 2004-05 and will be scaled up in the next financial year. There was also renewed growth in the Russian and CIS markets. Sales in Pakistan registered a 100% growth. Dabur has formulated structured strategies for its foray into

the international market. Based on market assessment, the Company has identified 20 focus countries where it is evaluating the need for having a manufacturing facility or marketing presence. One of these countries is Pakistan. Given similar taste patterns as India, this is a good market for Dabur, but the need to establish a presence there as a local venture is being carefully evaluated. There are another set of countries, which are termed as opportunity markets, where Dabur will forge alliances based on opportunies. In its first concerted endeavour to extend Daburs products to the mainstream international markets in developed countries, your Company is exploring opportunities to enter into a marketing alliance with some of the well established retail chains in the UK. There is a large market for herbal based therapeutic products amongst the mainstream population in developed markets, dealing primarily with lifestyle ailments. The focus of this initiative would be to cater to this market in UK through OTC products. For this purpose, Dabur needs to have the selected products and production processes certified with the Medicines and Healthcare Products Regulatory Agency (MHRA)the executive approving agency of the UK government. The Company has already initiated this process. Entry strategies are also being developed to enter the USA supplements market. Daburs shareholding in Dabur Nepal has been increased from 80 per cent to 97.5 per cent by acquiring additional 17.5 per cent shareholding from the minority partners based in Nepal. The shares were acquired by Dabur International with a view to reduce minority shareholding and retain maximum profits under the consolidated Dabur umbrella.

International Business
During 2003-04, the Company started giving greater impetus to the international business. The entire international operations was reorganised and an umbrella organisation called Dabur International Limited was created to provide focus and structure to the international initiatives. This entity has an independent team and operates out of Dubai. Overseas sales grew by 43.4% per cent from Rs.128 crore in 2003-04 to Rs.183.6 crore in 2004-05. The overseas impetus has been maintained and the share of overseas in Dabur total sales increased from 9.6 per cent in 2003-04 to 11.9 per cent in 2004-05. The data of relative domestic and overseas sales and net profit for the consolidated entity is given in Table 1. _ Domestic Overseas _ 2004-05 2003-04 2004-05 2003-04 Sales 1353.4 1201.5 183.6 128.0 % of total 88.1 90.4 11.9 9.6 Net Profit 151.7 100.6 5.3 8.7 % of total 96.6 92.0 3.4 8.0 Table 1: Relative share of sales and profits of domestic and overseas businesses The Company continues to leverage the herbal specialist platform in the overseas markets and offers products in different geographies based on local tastes and demands. During 2004-05, the Company also made investments in

global brand building which have brought down the net profit as compared to last year. However the profitability of the business is expected to improve with increasing volumes and better utilization of the infrastructure which has been put in place. Daburs products are gaining ground in the Middle-East, which witnessed around 24.4 per cent growth in net sales during 2004-05 on the back of a major brand building exercise. In Egypt, the turnover almost doubled in 2004-05 with significant growth in the Companys oral care and hair
Annual Report 2004-05 17

OPERATIONS
Manufacturing
India
In 2004-05, Dabur successfully commissioned its largest and state-of-the-art manufacturing facility at Rudrapur, Uttaranchal. Set up in a record time of four months, the plant is now fully operational and is being used to manufacture Chyawanprash, Hajmola tablets, Amla hair oil, Vatika hair oil, Lal Tail and Janam Ghunti. While the Rudrapur facility enjoys similar fiscal benefits as the Jammu and Baddi plants, the Company remains focused on leveraging higher operational efficiencies and superior quality levels from this plant. As part of our long-standing commitment to environmental safety and protection, an ultra-modern effluent treatment plan and an elaborate environmental management system has been commissioned in Rudrapur. Your Company believes that with its superior technology, modern manufacturing processes and exacting quality control procedures this plant will go a long way in further strengthening Daburs market position. Daburs plant in Jammu, commissioned in November 2003, is also fully operational and is being utilized for manufacturing hair oils, shampoos, Gulabari, Kewra water and intermediaries. This plant features a modern and compact shop floor design, lean organization structure, improved system processes and stringent quality control norms. Higher batch sizes and larger scales of production at this facility have contributed to major improvements in product quality, consistency and productivity. During 2004-05, Dabur added a toothpaste and Nutritional Supplements manufacturing capacity at its Baddi plant. The Company has also set-up a fully operational effluent treatment plant at this [Link] total capital expenditure incurred by the Company on these facilities and other requirements amounted to Rs.56.1 Crore. This has enabled the Company to enhance manufacturing capacity significantly besides upgrading technology. As a result of the Balsara acquisition, Dabur has added three more manufacturing facilities to its fold, located at Silvassa, Baddi and Kanpur. While the Silvassa and Kanpur facilities are primarily engaged in manufacturing household range of products and the private label business, the Baddi plant produces oral care products, including fluoride based toothpaste. This plant was set up in 2004-05 and enjoys tax

benefits as are available to new units in Himachal Pradesh. Dabur Foods multi-fruit processing facility at Siliguri, West Bengal, became fully operational during the year. The plant produces pulp and concentrates and has brought the Company a step closer to achieving full backward integration and realising the resultant cost efficiencies. The location of this plant is a major source of its competitive strength. It is located at the heart of a major fruit-producing and trading area, thus, giving it access to a variety of fruits including litchi, guava, mango and tomato at competitive prices. Moreover, it is in close proximity to the Dabur Foods juice plant located in Nepal, thereby reducing time and cost of transportation. The plant meets the stringent requirements of the Codex Alimentarius Commission Guidelines, the Recommended International Code of Practices and the General Principles of Food Hygiene. In 2004-05, Dabur Foods acquired a new facility near Jaipur for manufacturing fruit juices. The plant currently has manufacturing facilities for 200 ml packs. This plant will be upgraded to manufacture 1 litre and 200 ml packs of Real brand of fruit juice and the Coolers range of products. Operations at the Nepal plant have been meeting all requirements and have not been impacted by domestic disturbances.

Overseas
Dabur International has manufacturing facilities at Dubai, Sharjah and in three of its step-down subsidiaries Asian Consumer Care Private Limited in Bangladesh, Dabur Egypt Limited in Egypt and African Consumer Care Limited in Nigeria. During the course of the year, the plant at Nigeria
18 Dabur India Limited Management Discussion & Analysis

became operational. Production at the Bangladesh plant had begun in 2003-04. This was stabilised, and 2004-05 was the first full year of operations here.

Quality
Dabur remains resolute in its commitment to enhance quality levels across its product portfolio. In this regard, over the last few years, the Company has maintained a sharp focus on upgrading technology and improving manufacturing processes at all its plants. As part of its quality assurance programme, it undertakes regular factory quality audits by trained quality auditors, ensures compliance with ISO 9000 procedure and implementation of established standard operating procedures across its manufacturing bases. Through significant technological up-gradation, the manufacturing process of Hajmola Anardana Goli has been made free from human touch, thus, bringing in improvement in hygiene. The production process of Hajomla candy has also been upgraded to convert the product into depositor form, thus giving it a smoother finish. The Honitus and Nature Care product lines at the Baddi plant have been set-up to meet appropriate standards of safety, quality, performance and effectiveness as set by Medicines and Healthcare Products Regulatory Agency (MHRA) the executive agency of the Department of Health, Government of UK. Apart from this, the plants

manufacturing Chyawanprash, Glucose and Honey have received Hazard Analysis and Critical Control Point (HACCP) certifications.

Supply Chain
In the current inflationary backdrop, supply chain efficiencies have assumed even greater importance. Our initiatives over the last couple of years in supply chain management have stood us in good stead and during 2004-05, Dabur continued to realize procurement efficiencies and reduce its input costs in spite of inflationary pressures. In fact, Dabur is one of the few companies in the FMCG industry which has reduced its input costs consistently over the last few years by focusing on high degree of skills in the area of procurement and materials management. Through usage of innovative procurement strategies and modern forecasting and research tools, the Companys material cost as percentage of sales came down from 43.7 percent in 2003-04 to 42.9 per cent in 2004-05. During the year the Company successfully deployed the Spend Visibility programme in collaboration with Ariba (earlier FreeMarkets) to further strengthen its procurement efficiencies. This program has significantly enhanced the quality of information and visibility in sourcing priorities of the Company. The Company is also intent upon creating a backwardintegration platform for herbal inputs, especially those on the endangered list. To this end, Dabur has made a foray into contract farming for selected herbs as part of the Agrobiotechnology initiative. Under this initiative, a number of backward integration programmes have been set up in Andhra Pradesh, Tamil Nadu, Haryana, Uttar Pradesh, Himachal Pradesh, Uttaranchal , Jammu and Kashmir and Nepal to develop sustainable cultivation of these engendered species through contract farming and buy back arrangements. Dabur enters into contract farming agreements with farmers through a local coordinator. The Company also organizes quality-planting material with promising genetic potential to farmers on no-profit-no-loss basis and provides additional technical support. In all about 2500 acres of land and 29 medicinal herbs have been covered under this programme, which contributes to environment and adds to the income of farmers in addition to providing a sustainable source of herbal inputs to the Company.

Research and Development

R&D has been the cornerstone of Daburs success. The Research and development activities are undertaken by Dabur Research Foundation (DRF). DRF is engaged in a wide spectrum of research on Ayurvedic and herbal products, organic substances, Phytochemicals (plant derived
Annual Report 2004-05 19

medicines), tissue culture, foods, cosmetics, oral care and other personal care products. In 2004-05, the research capabilities of DRF were further braced up with the settingup of new world-class laboratories and induction of wellknown

scientists in the field. The depth and knowledge of DRFs research capabilities is particularly reflected in its success in the area of new product development. In the year under review, your Company introduced Dabur Red Toothpaste Gel, Anmol Cold Cream a moisturiser with saffron and almonds, Anmol range of herbal shampoos, Vatika Honey and Saffron soap, the Coolers range and new fruit and vegetable flavours in the Real Activ range of juices. The Company has also developed a differentiated product in the herbal nutritional supplements category which is being launched-all on innovation-backed platforms. Given their unique properties, Dabur believes that these products will create a niche for themselves in their respective markets. Improving speed-to-market on newly researched products has been a key focus area of research at DRF. In the past, commercial production of many researched products was hampered due to limited focus on devising innovative production processes. However, with this focus, improvements have been made in transferring new products out of the laboratory to commercial production in a much shorter span of time. In the last few years, Dabur has given a major thrust to clinical trials and generating claims support data. To this end, Dabur had entered into a strong partnership with the Dhanwantri Ayurvedic Hospital now called Dabur Dhanwantri Hospital in Chandigarh. This initiative gained further momentum during the period under review. The Company is working proactively to upgrade OPD and operation theatre in the hospital as well as to improve facilities at the training institute. Dabur is also in active collaboration with Wardha College, Poddar Institute, All India Institute of Medical Sciences (AIIMS) and Benaras Hindu University to conduct clinical research and claim support tests. Till date, the Company has conducted more than 115 clinical trials with 40 medical institutes across the country. Going forward, your Company also expects to leverage the perfumery, flavours and home care product capabilities of the Balsara R&D centre based in Thane, Mumbai.

Human Resources
Dabur takes great pride in the commitment, competence and vigour shown by its workforce in all realms of business. The Company continues to take new initiatives to further align its HR policies to meet the growing needs of its business. To this end, Dabur has introduced a uniform and structured induction process across all its locations in India. Using the intranet, post-induction programs have been made available at all recruitment locations of the Company. Dabur has also been pursing the Young Manager Development Program (YMDP) to attract and nurture fresh talent in the Company. Under this programme, in 2004-05, the Company recruited 18 candidates from leading management schools in India. Under YMDP, each candidate is mentored by a member of the senior management and is put through a one year crossfunctional training programme. The Company has adopted

the Balanced Scorecard for performance evaluation and strategy deployment. All four aspects of the scorecard financial perspective, customer perspective, internal business process and innovation and learning have been formally communicated across the management and individual Key Performance Indicators (KPIs) identified thereon. Annual appraisals, down to the level of area sales managers, are based on the parameters identified as KPIs. This has ensured that balance across multiple dimensions of performance is maintained and that good accomplishment in one area is not offset by poor execution elsewhere. Dabur has also set-up Assessment and Development Centres to provide employees equitable growth opportunities and a platform to realise their potential. These
20 Dabur India Limited Management Discussion & Analysis

centres employ scientific processes to assess the growth potential of each individual. Based on this assessment, employees are placed where their potential is best utilised. For senior management, this programme is conducted by a reputed professional organisation. People development continues to be a key focus area at Dabur. The Company organises regular Management Development Programmes (MDPs) in the form of workshops and training sessions for both the senior and junior management. A training module has been prepared for the Companys frontline salesmen, including those on the rolls of its stockists. Based on this module, the Company plans to hold day-long workshops at various locations for over 2,000 frontline salesmen and is currently engaged in training the trainers programme for this purpose. Recruitment costs have been brought down through the introduction of a structured employee referral programme and creation of centralised employment database with access control capabilities. As Dabur builds on the synergies with Balsara, it will have to deal with the challenges of integrating the two workforces. The Company is well-placed to manage this integration process. While the immediate integration focus will remain on key functional areas required to maintain continuity in the different businesses, in the medium term the Company will endeavour to fully-integrate the value systems and knowledge based capabilities of the two organisations.

FINANCIAL PERFORMANCE
The abridged financials of Dabur India Limited (DIL) for the year 2004-05 including revenue, expenditure and profits, are presented in Table 2. It may be noted that Daburs financial results as on 31 March 2005 do not account for the Balsara acquisition, which come into effect from 1 April 2005. Table 2 : Abridged Profit & Loss Account (Rs. crore) _ Dabur India Dabur India Growth 2004-05 2003-04 (%) 1 Net Sales 1,268.7 1,148.0 10.5

2 Other Income 11.5 11.0 4.1 3 Total Revenue 1,280.2 1,159.0 10.5 4 Total Expenditure 1,092.3 1,020.8 7.0 5 EBIDTA 187.9 138.2 36.0 6 Depreciation 17.1 15.8 8.6 7 Amortisation 1.5 2.1 -29.0 8 Interest 4.3 6.9 -37.7 9 PBIT 169.3 120.3 40.7 10 PBT 165.0 113.4 45.5 11 Current tax 13.0 8.8 48.6 12 Deferred tax 4.0 3.5 14.6 13 PAT 148.0 101.2 46.3 14 EPS 5.2 3.5 _ 15 EPS (Diluted) 5.1 3.5 _ As can be seen in Table 2, Dabur India continues to pursue its path of high profitable growth. With the renewed strength of its brands, your Company recorded a 10.5 per cent growth in net sales, from Rs.1,148 crore in 2003-04 to Rs.1,268.7 crore in 2004-05. This healthy top-line growth, accompanied by efficiencies in manufacturing and supply chain, contributed to a 36 per cent growth in operating profits (EBIDTA) from Rs.138.2 crore in 2003-04 to Rs.187.9 crore in 2004-05. Driven by much tighter working capital management, interest outgo decreased by 37.7 per cent from Rs.6.9 crore in 2003-04 to Rs.4.3 crore in 2004-05. The company also continues to operate with negative working capital. These factors have contributed to an impressive 46.3 per cent growth in profit after tax (PAT) from Rs.101.2 crore in 200304 to Rs.148 crore in 2004-05. As can be seen in Table 3, all profitability ratios of the Company have gone up in the year under review.
Annual Report 2004-05 21

Table 3: DILs Profitability Ratios (%) _ 2004-05 2003-04

EBDITA/Sales 14.8 12.0 PBT/Sales 13.0 9.9 PAT/Sales 11.7 8.8 ROCE 38.7 34.9 RONW 44.5 38.6

There has been a significant improvement in operating margin (EBDITA/Sales), which grew from 12.0 per cent in 2003-04 to 14.8 per cent in 2004-05. Net profit margin (PAT/ Sales) has also grown from 8.8 per cent 2003-04 to 11.7 per cent 2004-05. The improved margins have been primarily driven by two factors. First, due to improvements in supply chain and manufacturing, the costs have been driven down substantially. Second, with the commissioning of the Jammu, Baddi and Rudrapur plantsall located in excise free zones the Company has been able to benefit from the fiscal concessions offered at these locations. Your Company has also found success in reducing its working capital cycle significantly over the last couple of years. The net working capital which was at negative 5 days of sales in 2003-04 came down further to negative 20 days of sales during 2004-05. Consequently, the ROCE has

increased from 34.9 per cent in 2003-04 to 38.7 per cent in 2004-05. The strong bottom line has also pushed up the RONW from 38.6 per cent in 2003-04 to 44.5 per cent in 2004-05. The Company has declared total dividend of 250 per cent which translates into dividend payout ratio of 48.3 per cent. The dividend payout ratio has been maintained inspite of significant investments made in manufacturing facilities as well as the Balsara acquisition.

Consolidated Financials
Table 4 gives the abridged financials of Dabur on a consolidated basis. Table 4 : Consolidated, Abridged Profit & Loss Account (Rs. crore) _ _ Dabur Dabur Growth
Consolidated Consolidated (%) 2004-05 2003-04 1 Net Sales 1,537.0 1,329.6 15.6 2 Other Income 9.2 9.1 1.5 3 Total Revenue 1,546.2 1,338.6 15.5 4 Total Expenditure 1,328.1 1,170.4 13.5 5 EBIDTA 218.0 168.3 29.6 6 Depreciation 28.0 24.9 12.5 7 Amortisation 1.5 3.9 -61.5 8 Interest 12.4 15.3 -18.6 9 PBIT 188.5 139.4 35.2 10 PBT 176.1 124.2 41.8 11 Current tax 15.1 11.4 33.0 12 Deferred tax 4.0 3.5 14.6 13 PAT 157.0 109.3 43.6 14 Minority interest (1.2) (2.8) -57.0 15 PAT after 155.8 106.5 46.3 minority interest 16 EPS 5.4 3.7 _ 17 EPS (Diluted) 5.4 3.7

Driven by impressive growth of the Foods and International businesses, the net sales of the Company on a consolidated basis registered a growth of 15.6 per cent from Rs.1329.6 crore in 2003-04 to Rs.1537 crore in 2004-05. The consolidated net profit (PAT after minority interest) also posted a strong growth of 46.3 per cent increasing from Rs.106.5 crore in 2003-04 to Rs.155.8 crore in 2004-05. As presented in Table 5, all profitability ratios calculated on a consolidated basis have shown a marked improvement in 2004-05. Table 5: Dabur Consolidated, Profitability Ratios (%)
2004-05 2003-04 EBDITA/Sales 14.2 12.7 PBT/Sales 11.5 9.3 PAT/Sales (after minority interest) 10.1 8.0 ROCE 31.5 29.2 RONW 43.5 38.1 22 Dabur India Limited Management Discussion & Analysis

The highlights of the consolidated performance are as follows: Operating profits (EBIDTA) increased by 29.6 per cent from Rs.168.3 crore in 2003-04 to Rs.218.0 crore in 200405. Operating margin (EBDITA/sales) also grew from 12.7

per cent in 2003-04 to 14.2 per cent in 2004-05. The interest coverage ratio (ratio of profit before interest and tax to interest payments) has increased from 9.1 times in 2003-04 to 14.8 times in 2004-05. Net profit margin (PAT/Sales) increased from 8 per cent in 2003-04 to 10.1 per cent in 2004-05. Return on Capital Employed has gone up from 29.2 per cent in 2003-04 to 31.5 per cent in 2004-05. Return on Net Worth increased from 38.1 per cent in 2003-04 to 43.5 per cent in 2004-05.

RISKS AND CONCERNS

Uncertainties in business offer opportunities and downside risks. Consequently, your Company recognises the importance of a well structured system to identify and manage the different elements of risk. Dabur has introduced a risk-based control system and appointed risk officers across all Company locations. The basis of this process driven risk management system is the risk register that not only lists a comprehensive set of risks across 15 functional domains but also states control tools under process owners that are there to minimise each risk. The inherent risks across operational, strategic and tactical issues are mapped in terms of likelihood of occurrence and materiality. Some key areas where risks have been identified and mitigation tools put in place are: Brand Equity risks These risks are inherent to any FMCG Company like Dabur, which has a long-term market standing and high brand equity. They are linked to issues related to media, PR and competition. The market space is also filled with counterfeits and spurious products, which are a threat to the Companys brand equity and revenue. There are also inherent risks associated with new products that are constantly being introduced by Dabur. However Dabur has put in place necessary systems to mitigate these risks which is reflected in the high success rate of its new product initiatives and sustained revenue growth. Finance and Treasury risks apart from regular risks like authorisation risks, reporting risks and exposure risks, Dabur, with an increasing international presence, is continuously exposed to risks associated with foreign exchange fluctuations. Like any other Company, Dabur is also exposed to risks attached to economic and political uncertainty. Supply chain and procurement risks These are risks associated with the market dynamics of the Companys inputs, where the Company needs to take positions. There are systems in place that enhance transparency and scientific decision making in procurement and production planning. Many of the Companys inputsare in the nature of herbs and plant extracts, some of which are endangered. Your Company has put in place a system of backward linkages where contract farming of such inputs is promoted. Other set of risks deal with development and retention

of human resources, compliance and regulatory activities, data security and recovery systems across the companys IT infrastructure and issues related to quality and research and development. The Company is putting in place a Business Continuity Plan and a Disaster Recovery Plan to mitigate risks in the event of unforeseen exigencies. The enterprise-wide risk management system analyses and deals with these risks based on the overall objective with a focus on identifying, assessing and subsequently developing controls to minimise risks. The framework so designed ensures adherence to the rules, regulations and internal policies of the company. A Chief Risk officer has been appointed, who is responsible for the entire risk governance of the Company.
Annual Report 2004-05 23

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Dabur has a robust internal audit and control system. The internal control system at Dabur is a process, overseen by the Board of Directors, management and other personnel, that provides reasonable assurance regarding the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations Price Waterhouse Coopers is the internal auditor for the Company and its subsidiaries. The Companys Internal Audit function is staffed with qualified and experienced people. The Standard Operating Procedures (SOPs) put in place by the Company, are in line with the best global practices, and have been laid down across the process flows, along with authority controls for each activity. In the year under review, Dabur has introduced the COSO framework for internal controls and adequacy of internal audit. Under this framework, various risks facing the Company are identified and assessed routinely across all levels and functions and suitable control activities are designed to address and mitigate the significant risks. The Internal Audit Department reports to the Audit Committee and recommends control measures from time to time. To read the report of the Audit Committee on internal control and adequacy, refer to the section on Corporate Governance of the Annual Report.

OPPORTUNITIES, THREATS AND OUTLOOK

Dabur is cautiously optimistic about its prospects in 200506. We believe that, if the Indian economy continues to grow by over 6.5 per cent, demand for FMCG products is bound to increase. However, a bulk of this demand growth will be from smaller towns and rural centres. This also points to the fact that growth will largely be volume driven. The major concern for 2005-06 is to do with prices of inputs. It is widely accepted that with output prices under pressure and input costs being higher, the sector will face margin pressures.

With the possibility of Foreign Direct Investment being allowed in the retail sector and consequent entry of large international retail chains, the FMCG industry will see some structural changes happening which could result in a strong growth momentum. Your Company is gearing up to capitalize on this opportunity by putting in place a specialized sales structure dedicated to modern retail channels. The challenge for your Company in the next financial year is to be able to accelerate growth and maintain margins. We believe that by leveraging our herbal specialist brand equity, offering a wider product portfolio, and strategically positioning our products in different market segments, we will largely de-risk ourselves from pricing pressures and segmental contractions, if any. On the production side, the location of our plants deriving fiscal benefits, coupled with procurement and supply chain efficiencies, we will be able to maintain good margins.

CAUTIONARY STATEMENT
Statements in this management discussion and analysis describing the Companys objectives, projections, estimates and expectations may beforward looking statements within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downward trend in the domestic FMCG industry, rise in input costs, exchange rate fluctuations, and significant changes in political and economic environment in India, environment standards, tax laws, litigation and labour relations