Dabur needs to widen portfolio

Dabur India’s decision to merge the food subsidiary Dabur Foods with itself has put an end to speculation over what the company would do with the arm. Dabur had earlier spun off its pharmaceutical business to a separate company, listed it and gave shares to Dabur shareholders.

But Dabur Foods now becomes a division. In financial terms, the impact is negligible as the consolidated accounts reflected the foods company’s performance.

The merger is an acknowledgement that Dabur’s foods business has come of age. The Rs 243-crore turnover company has been growing at a 35% 5-year CAGR. Most of its revenues come from selling fruit juices, where it has a 51% share of the market.
It is difficult not to believe that Dabur has a larger gameplan in mind for the foods business.

Size it may have but the foods business portfolio lacks breadth, limited to selling juices and a few other culinary products that don’t count for much. What it needs now is a broader portfolio for the foods market where the future lies. In 2007, food products are credited with having driven the FMCG market growth of 22%.

While fruit juices may have done very well, the success is partly due to Dabur Foods’ relentless focus on this product, supported by aggressive marketing. That’s why it suffered losses for many years, before it made profits.

Dabur India is now likely to focus on adding products, possibly through acquisitions too, to give it a much larger scale. Dabur can now use its balance-sheet size to buy brands or businesses in foods. Scale will also help improve the foods’ business profitability, from a 9% segment margin, compared to 22% overall.