Sensitivity Analysis of Dabur India

Limited
Advanced Corporate Finance

Submitted by –
Submitted to – Neelam Rohada
Dr. Santanu das JI/2021-23/0069
Objectives
• To understand how different values of an independent variable affect a particular
dependent variable under a given set of assumptions through sensitivity analysis.

• To determine the impact of New Investment in Dabur India limited

• To understand what are the variables impacting the Financial performance of Dabur
India Ltd.

• To determine the projected cash flows of Dabur India Ltd.

• To Analysis news articles and Research report

• Understanding the company's trends from a profit standpoint.
Articles
Dabur announces fresh Investment of Rs. 550 Cr
• Dabur India Ltd announced a fresh investment of Rs 550 crore for a new manufacturing facility in
Madhya Pradesh, which it said would be one of its largest plants in the world.

• Dabur said in a statement the new plant, which would be involved in the production of making
foods, ayurvedic medicines and health supplements would provide direct and indirect employment
to 1,250 people in the first phase and over 3,000 people subsequently.

https://economictimes.indiatimes.com/industry/cons-products/fmcg/dabur-
announces-fresh-investment-of-rs-550-crore/articleshow/83774944.cms
ICICI direct Research Report
According to ICICI direct report Dabur India Limited reported splendid volume growth in Q1
FY22 results
1. Sales were up 31.9% YoY with strong growth across segments
2. EBITDA was at Rs 552 crore, up 32.5% YoY, with margins at 21.1%
3. Consequent PAT was at Rs. 437.7 crore (up 28.2% YoY)

https://www.icicidirect.com/mailimages/IDirect_Dabur_Q1FY22.pdf
About FMCG
1. The FMCG market in India is expected to increase
at a CAGR of 14.9% to reach US$ 220 billion by
2025, from US$ 110 billion in 2020. Market Size - FMCG
2. The FMCG industry in India is dominated by the Industry in India

market Size in trillion INR

Household & Personal Care category, which
20 15.628
accounts for 50% of the total consumer goods retail 15
market. 10 7.814
Growth drivers of FMCG sector – 5
Favourable Government policies 0
• 100% allowance of FDI in single brand retail 2020 2025

• 51% in multi brand retail Year

• Introduction of GST

https://www.ibef.org/industry/fmcg
Dabur India Ltd.
Dabur is one of the best Ayurvedic & Natural Health Care
Company in India

● Founder – S. K. Burman
● Net Sales turnover – INR 7184.72 Cr
● Market Cap (as on 17th April,2022) – INR 98257 Cr
● Share Price (as on 17th April,2022) – INR 555.90

Dabur is almost a debt free company as its Interest coverage

ratio of 185.17
New Investment of Dabur India Ltd.
Fresh Investment of 550 Cr for a new manufacturing facility in
Madhya Pradesh in next 5 years, which would be one of its largest
plants in the world.

With an investment of Rs 15 crore Dabur India has launched a

initiative ‘Project Core’ to expand its distribution footprint in the
chemist channel. Dabur expects to increase its chemist coverage
from 55,000 to 75,000 in the phase I.
Impact of New Investment
1. This plant will directly and indirectly generate employment to 1250 people
in the first phase and over 3000 people subsequently.
2. According to The Economics Times This facility will provide Dabur India
Limited a rapid expand production capacity for Ayurvedic products and
medicines.
Overview
● We have considered 9 years from FY2016-17 to FY2026-27 to evaluate the projected
future cash flow.
● Dabur India Limited is not performed well as per our calculation the growth rate has been
decline as compare to last two years i.e., from 16% (2020) to 12% (2021).
● As per our prediction it will perform well as the Net present value (NPV) is positive i.e.,
(₹ 20,440.85 Cr) whereas, the future investment of Dabur India Limited is 550 Cr. Our
IRR (73%) is more than WACC (13%)
 Sensitivity Analysis
As per the ICICI direct report, Dabur India As per our calculation,
Limited has evaluated certain factors for
 Growth Rate in FY2021 is 12%.
FY2021-
 Return on Equity is 30%.
 Sales of the company is impacted by several  WACC is 13%.
variables such as Advertising expense, sales  In sales forecast, Significant F is 18% which
promotion, GDP, inflation. is depicting that the project is not
 Growth Rate in FY2021 is 11.6% appropriate. Basically, when the significant
 Return on Equity is 22.1%. F is more than 5% it tells us that the project
  is not appropriate.
Sensitivity Analysis
Input Output - NPV
Base -13.00% 13.00% Base -13.00% 13.00%
Growth 12.00% 10.44% 13.6% ₹ 12,440.84 11,952.30 12,943.10
Discount 13.00% 11.31% 14.69% ₹ 12,440.84 13,269.70 11,667.70 13.00%

Chart Title

-13.00% 13.00% 11667.7

13.00%
Growth 11952.3 12943.1 12943.1
Discount 13269.7 11667.7
13269.7
-13.00%
11952.3

10500 11000 11500 12000 12500 13000 13500

Discount Growth
Interpretation
First, we have calculated the length of the bars it says higher than length, more is the sensitiveness.
 As we can see from the chart this cash flow is more sensitive towards the change in Discount rate
rather than the Growth rate
 If the discount rate reduced by 13% so the NPV is more sensitive to the decrease in the discount
rate as compare to the increase in the Discount rate by the same percentage
Thus, for our project Discount rate is important rather than growth rate.
When the growth rate is decreases by 13% then NPV is highly sensitive to the increase in the Growth
rate.
Model Applied
Future projections based on some Inputs
• New Investment = 550 Cr
• Variable cost = Raw Material Consumed
• Fixed Cost = Depreciation
Sales Forecast using Regression
 Sales of Dabur is could be impacted by few variables such as Advertisement, GDP, Inflation, etc.
so, we have taken these three variables to calculate sales forecast.
 
 Assumptions
For sales forecasting we have taken Advertisement , GDP & Inflation are the factors impacting
sales of Dabur India Ltd.
• We assumed that Dabur India has increased its advertisement expense on the basis that it is
expected to increase its sales in future
• GDP has shown positive figure and even it has also increase i.e., 8.90% so, we assumed
that GDP will increase in future also as production will increase.
• From seeing the trend of inflation rate that it is increasing constantly so from that we are
assuming that the rate of inflation will also increase.
 Recommendations

 Dabur India limited should invest in this project as this investment is profitable and will be
beneficial as its Net present value is positive whereas, the IRR is also greater than the WACC.
The growth rate of Dabur India Limited for FY2020-21 is slightly less than FY2019-20 but it
is concluded that it will be effective.
 Dabur India Limited should do expenditure on Advertisement as we can see from sales
forecast that Advertisement is impacting sales in a positive way. The sales of Dabur India is
increasing as the sales is increasing. Hence, Dabur India should make advertisement expense
in Future.
Conclusion
Thank You!