Introduction of Acquirer

8/7/2019 Introduction of Acquirer

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PROJECT ONACQUISITION OFDABUR BY NESTLE

SUBMITTED TO:

RIDHI BHATIA

SUBMITTED BY

AMIT RAWAT

RAJESH KUMAR

RISHABH WADHWA



FMCG SECTOR ² An Introduction

The Indian FMCG sector is the fourth largest sector in the economy

with a total market size in excess of US$ 25 billion (Rs. 120,000 cr.).It has a strong MNC presence and is characterized by a well

established distribution network, intense competition between the

organized and unorganized segments and low operational cost.

Availability of key raw materials, cheaper labor costs and presence

across the entire value chain gives India a competitive advantage.

It has grown consistently over the last 3 ² 4 years. Indias FMCG

sector is fragmented and substantial part of sector comprises of unbranded and unpackaged products.

Based on latest trend, a report on FICCI and Technopak project a

growth of 10 ² 12 percent for the next 10 years, reaching a size of

US$ 43 billion (Rs. 206,000 cr.) by 2013 and US$ 74 billion (Rs.

355,000 cr.) by 2018. Implementation of the Goods and Service Tax

(GST) and opening up of Foreign Direct Investment (FDI) in retail can

accelerate this growth.

FMCG comprises of following segments:

Personal Care:

Oral care, hair care, skin care, personal wash (soaps); cosmetics

and toiletries; deodorants; perfumes; feminine hygiene; paper

products.



Household :

Fabric wash (laundry soaps and synthetic detergents); household

cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners,

airfresheners, insecticides and mosquito repellents, metal polish

and furniture polish).

Food & Beverage :

Health beverages; soft drinks; staples/cereals; bakery products

(biscuits, bread, cakes); snack food; chocolates; ice cream; tea;

coffee; soft drinks; processed fruits, vegetables; dairy products;

bottled water; branded flour; branded rice; branded sugar; juices

etc.

Tobacco

Lighting



SWOT ANALYSIS OF FMCG SECTOR

STRENGTHSy Low operational costsy Presence of establishedy distribution networks in

bothy urban and rural areas

Presence of well ² known brandsin FMCG Sector

WEAKNESSy Lower scope of investing in

technology and achievingy economies of scale,

especially insmall sectors.

y Low export levelsy ´Me-tooµ products, which

illegally mimic the labels of theestablished brands, theseproducts narrow the scope of

FMCGy products in rural and semi-

urban market. OPPORTUNITIES

y Untapped rural market y Rising income levels, i.e.

increase in purchasingpower of consumers

y Large domestic market ² a

population of over onebilliony Export potentialy High consumer good

spending

THREAT

y Removal of import

restrictions resulting in

replacing of domestic

brands.

y Slowdown in rural demand



SOCIO - ECONOMIC CONTRIBUTIONSECTOR·S CONTRIBUTION

y

Employment :It is amongst the largest employers in India. With about 9 million´kiranaµ storesselling FMCG produces, it supports livelihood of 13 million people.Another 25million people are employed at wholesalers, distributors, stockist,etc

y

Intake of Agricultural Output :

US$ 2 billion (Rs. 9600 cr.) of agricultural produce is purchased bythe FMCG sector,processed and converted into value added products.

yConsumption of Media and Advertising:

40% of media earnings from advertising come from the FMCG sector,contribution of US$ 2 billion (Rs. 9600 cr.).

yContribution to Contract Manufacturing:

About 10 percent of FMCG production is outsourced to contract manufacturing units,with ancillary industry contribution at about US$ 1.5 billion (Rs. 7200cr.).

Fiscal Contribution:

The FMCG sector contributes US$ 6.5 billion (Rs. 31,000 cr.) through

direct and indirect taxes to the exchequer. Indirect taxes are about 30 percent of MRP, while direct tax includes corporate income tax.



KEY DRIVERS OF FMCG SECTORKey Growth Drivers

The FMCG industry has undergone substantial growth on account of the following reasons:y Favorabl e Indian Economy & Demogra phics: 45% peo pl e in

India ar e und er 20 y ear s o f ag e. Per ca pi t a di spo sabl e in com eha s in cr ea sed f rom $550 t o $600 in 2007 (9% in cr ea se). GDP i sgro wing a t a CAGR b etween 8 t o 9%.In the n ext f iv e y ear s,a ff l uen t and a spir er s a s a t o t al will super sed e st riv er s and will b e domina ted by a spir er s, a s per NCAER.

y L arg e Dom est i c Mark et: Incr ea si ng di spo sa ble i ncom e ha s

r esulted i n a ri se i n the dom est i c mark et si ze. Incr ea si ng i ncom e ha s t ra nslat ed i nto hig her co nsum ptio n levels.y D i spo sabl e In com e: There i s in crea se in di spo sabl e in com e,

ob served in bo th rural an d urban con sum ers, whi ch i s gi vin go ppo rtuni ty t o man y rural con sum ers t o shi ft from tra di t ional uno rgani zed unb ran ded pro ducts t o b ran ded FMCG pro ductsan d urban fra terni ty t o spl urge on val ue a dded an d li festyl epro ducts.

y Bu ying Patt ern Shift: The cri si s of declining FMCG mar ket sdu ring 2001-04 wa s dri ven by n ew a ven u es of expen dit u r e f or gr owing con su mer in come su ch a s con su mer du ra bles,ent ertain ment , mobi les, mot or bi kes et c. Now, a s many con su mer s ha ve a lr ea dy u pgra ded, th eir in come i s being dir ect ed t owar ds pa mpering th emselves.

y P r esen ce a cro ss val u e chain : In dian FMCG f ir ms hav e a pr esen ce a cro ss t h e en t ir e val u e chain o f t h e in du st r y, f ro mra w ma terial su ppl y t o f inal pro cessed an d pa cka ged goo ds,bo t h in t h e per sonal car e pro du cts an d in t h e f oo d pro cessin gsect or . As a r esu l t f ir ms lo ca ted in In dia hav e beco me mor e

co st co mpet i t iv e.

TECHNOLOGYy Growing shar e of organi zed r etail : Th e mod ern trad e for mat

pro vid es a wid er vi si bilit y to th e FMCG prod uct s. Organi zed





y Simultaneously, there are some signs of down trading in urbanhomes with fixed incomes given the more direct impact that such consumers have experiences due to the downturn.

y Most FMCG products (non durables) are necessities, and

therefore their volume consumption has been largelyunaffected in the current economic slowdown. A report byFICCI and Technopak states that the sector has coped well withrecent challenges and grew by 15 percent in 2009.

Major Challenges to the Indian FMCG sectory H ighly u norgani zed : Al t ho u gh t h e organi zed mar ket i s gaining

st r eng t h , ma jori t y o f t h e shar e i s st ill ca pt u r ed by t h eu

norgani zed mar ket. Ri sing in co me l evel s and a gro wing middl e cla ss allo ws play er s selling brand ed prod u cts t o pu sh con su mer s t o ward s brand ed prod u cts.

y H igh com petition b etw een larg e and small play er s: Ri se in di spo sabl e in com es and mor e yo ung po pulation ha ve spr uced up d emand s f or prod uct s in th e per sonal car e,

y processed food etc segments This has led to competition

among the FMCG



PEST ANALYSIS OF FMCG SECTOR

Political factor

1. GST regime 2. Transportation and infrastructure development in rural areas

helps in distribution network 3. Restrictions in import policies 4. Help for agricultural sector

Economical factor

1. GDP rate increase along2. Increase in disposable income at 10% annually for next 8 year

3. Indian FMCG recorded 16% sales growth in last fiscal

4. The FMCG sector is a 4th largest sector in india

Social factor1. Rural employment 2. Volume driven growth in rural market

3. Major young population can increase revenue 4. The Indian culture, social and life styles are changing

drastically

Technology factor1. Technology has been simplified and available in the industry 2. Foreign players helps in high technological development.



Introduction of Acquirer (NESTLE LTD)

IntroductionNestlé India is a subsidiary of Nestlé S.A., headquartered at Vevey,Switzerland. Globally, Nestlé (website:www.nestle.com) is a leadingnutrition, health and wellness company. The original parent companywas founded in 1905 as a result of a merger of two companiesnamely ² ¶Anglo-Swiss Milk Company· for milk products and the¶Farine Lactée Henri Nestlé Company·. The former of the two wasestablished in 1866 by the Page Brothers in Cham, Switzerland andthe later was established in 1866 by Henri Nestlé to provide an infant food product. Even during the early 1900s ¶The Nestlé Anglo-Swiss

Condensed Milk Company (Export) Limited· used to import productsto India but the formal journey of Nestlé India started only in 1959.Today with popular brands like NESCAFÉ, MAGGI, MILKYBAR, MILO,KIT KAT, BAR-ONE, MILKMAID and NESTEA under its belt Nestlé is awell known name in India.

Fact File

Founded 28th March, 1959

Vision

´To rapidly build Nestlé India as theRespected and Trustworthy leading Food,Nutrition, Health and Wellness Companyensuring long term sustainable andprofitable growthµ

Revenue fromoperations (2007-08) Rs. 43,351 millionProfit After Tax (2007-08) Rs. 5,340 million

Chairman & ManagingDirector Martial G. RollandHeadquarters Gurgaon, IndiaWebsite www.nestle.in

(Source: Company Website and Presentations)



BrandsNestlé India has many brands mostly in the food and beveragessegment ² many of its brands are household names in India. Theseveral brands of Nestlé India can be divided into four categories.

Please find below a list of main Nestlé India brands undercorresponding categories.

1) Milk Products & Nutrition y NESTLÉ EVERYDAYy NESTLÉ Milky NESTLÉ NESVITAy NESTLÉ Fresh ¶n· Naturaly NESTLÉ CEREVITAy NESTLÉ MILKMAIDy NESTLÉ NIDO

2) Coffee and Beveragesy NESCAFÉy NESTLÉ MILOy NESTEA

3) Prepared Dishes & Cooking Aids y MAGGI

4) Chocolates & Confectionery y NESTLÉ KIT KATy NESTLÉ MUNCHy NESTLÉ MILKYBARy NESy TLÉ BAR-ONEy NESTLÉ Milk Chocolatey POLOy NESTLÉ Eclairs

Nestlé has two popular brands ² Cerelac and Lactogen ² in infant food category but advertisement for them is banned in India as perlaw. An important thing to note is Nestlé follows an umbrella



branding st ra teg y wher e most of i ts brand s ha ve the na me ¶Nestlé·a ssocia ted wi th i t and the sa me i s t r ue wi th i ts sub -brand s a s well.

Nestle - A SWOT ana lysi s

Nestle India Li mi ted i s the Indian ar m of Nestle SA, whi ch hold s a 51% st a ke in the compan y. It i s on e of the leading brand ed pr ocessed food compani es in the coun t r y wi th a larg e mar ket shar ein pr od ucts li ke in st an t coffee, weaning food s, in st an t food s,mi lk pr od ucts, etc. It a lso ha s a signi f i can t shar e in the chocola tesand other semi -pr ocessed food s mar ket.Nestlé's leading brand s in clud e Cer ela c, Nestum, Nesca fe, Maggi e,Ki tka t, Mun ch and Mi lkmaid . To st r eng then i ts pr esen ce, i t ha s b een the compan y's end ea vor to la un ch n ew pr od ucts a t a bri skpa ce and ha s b een qui te successful in i ts la un ches.

St r eng thPar en t suppor t - Nestle India ha s a st r ong suppor t f r om i ts par en t compan y, whi ch i s the wor ld ·s larg est pr ocessed food and b everag e compan y, wi th a pr esen ce in a lmost ever y coun t r y. Thecompan y ha s a ccess to the par en t·s hug ely successful g loba lfoli o of pr od ucts and brand s.Brand st r eng th - In India , Nestle ha s some ver y st r ong brand s li keNesca fe, Maggi and Cer ela c. These brand s ar e a lmost g en eri c to their pr od uct ca teg ori es.Pr od uct inn ova t i on - The compan y ha s b een con t in uouslyin t r od ucing n ew pr od ucts for i ts Indian pa t r on s on a f r equen t ba si s,thus expanding i ts pr od uct offering s.

Wea kn essExpor ts ² The compan y·s expor ts stood a t Rs 2,571 m a t the end of 2003 (11% of r even ues) and con t in ue to gr ow a t a d ecen t pa ce. But a ma jor por t i on of thi s compri ses of Coffee (ar ound 67% of the expor ts wer e tha t of Nesca fe in st an t to Russia ). Thi scon st i tutes a big chun k of the tot a l expor ts to a sing le loca t i on .



Historically, Russia has been a very volatile market for Nestle, andits overall performance takes a hit often due to this factor.Supply chain - The company has a complex supply chainmanagement and the main issue for Nestle India is traceability. The

food industry requires high standards of hygiene, quality of edibleinputs and personnel. The fragmented nature of the Indianmarket place complicates things more.

OpportunitiesExpansion - The company has the potential to expand to smallertowns and other geographies. Existing markets are not fullytapped and the company can increase presence by penetrating

further. With India's demographic profile changing in favour of theconsuming class, the per capita consumption of most FMCGproducts is likely to grow. Nestle will have the inherent advantageofthis trend.Product offerings - The company has the option to expand itsproduct folio by introducing more brands which its parents arefamed for like breakfast cereals, Smarties Chocolates, Carnation,etcGlobal hub - Since manufacturing of some products is cheaper in

India than in other South East Asian countries, Nestle Indiacould become an export hub for the parent in certain product categories.

Threat Competition - The company faces immense competition from theorganised as well as the unorganised sectors. Off late, toliberalise its trade and investment policies to enable the country to

better function in the globalised economy, the IndianGovernment has reduced the import duty of food segments thusintensifying the battle.Changing consumer trends - Trend of increased consumer spendson consumer durables resulting in lower spending on FMCG





INTRODUCTION OF ACQUIRINGCOMPANY(DABUR INDIA)

Dabur India Limited has marked its presence with significant achievements and today commands a market leadership status. Ourstory of success is based on dedication to nature, corporate andprocess hygiene, dynamic leadership and commitment to ourpartners and stakeholders. The results of our policies and initiativesspeak for themselves.

Leading consumer goods company in India with a turnover of Rs. 2834.11 Crore (FY09)

3 major strategic business units (SBU) - Consumer CareDivision (CCD), Consumer Health Division (CHD)and International Business Division (IBD)

3 Subsidiary Group companies - Dabur International, Fem CarePharma and newu and 8 step down subsidiaries: Dabur NepalPvt Ltd (Nepal), Dabur Egypt Ltd (Egypt), Asian Consumer Care(Bangladesh), Asian Consumer Care (Pakistan), AfricanConsumer Care (Nigeria), Naturelle LLC (Ras Al Khaimah-UAE), Weikfield International (UAE) and Jaquline Inc. (USA).

17 ultra-modern manufacturing units spread around the globe Products marketed in over 60 countries Wide and deep market penetration with 50 C&F agents, more

than 5000 distributors and over2.8 million retail outlets all overIndia

Consumer Care Division (CCD)

adresses consumer needs across the entire FMCG spectrumthrough four distinct business portfolios of Personal Care, HealthCare, Home Care & Foods

Master brands: Dabur - Ayurvedic healthcare products Vatika - Premium hair care Hajmola - Tasty digestives



Réal - Fruit juices & beverages Fem - Fairness bleaches & skin care

products 9 Billion-Rupee brands: Dabur Amla, Dabur

Chyawanprash,Vatika, Réal, Dabur RedToothpaste, Dabur Lal Dant Manjan,Babool, Hajmola and Dabur Honey

Strategic positioning of Honey as foodproduct, leading to market leadership(over 75%) in branded honey market

Dabur Chyawanprash the largest sellingAyurvedic medicine with over 65% market share.

Vatika Shampoo has been the fastest selling

shampoo brand in India for three years in arow

Hajmola tablets in command with 60% market share of digestive tablets category. About 2.5crore Hajmola tablets are consumed in Indiaevery day

Leader in herbal digestives with 90% market share

Consumer Health Division (CHD)

offers a range of classical Ayurvedic medicines and Ayurvedic OTCproducts that deliver the age-old benefits of Ayurveda in modernready-to-use formats

Has more than 300 products sold throughprescriptions as well as over the counter

Major categories in traditional formulations

include:- Asav Arishtas- Ras Rasayanas- Churnas- Medicated Oils

Proprietary Ayurvedic medicines developed byDabur include:



- Nature Care Isabgol- Madhuvaani- Trifgol

Division also works for promotion of Ayurveda

through organised community of traditionalpractitioners and developing fresh batches of students

International Business Division (IBD)

caters to the health and personal care needs of customers acrossdifferent international markets, spanning the Middle East, North &West Africa, EU and the US with its brands Dabur & Vatika

Growing at a CAGR of 33% in the last 6 years and contributes toabout 20% of total sales

Leveraging the 'Natural' preference among local consumers toincrease share in perosnal care categories

Focus markets:- GCC- Egypt - Nigeria

- Bangladesh- Nepal- US

High level of localization of manufacturing and sales &marketing



BCG Matrix

MARKET SHARE

HIGH LOWMARKET

HIGH STARy DABUR Glucosey DABUR Honey

y Meswak

Questiony Dazzly New U

G

ROWTH

LOW COWy Femy Chyawanprashy Hajmolay Real

DOG



REASONS FOR ACQUISITION

Robust Distribution Network of dabur

y Research & Development Strengths of dabury Strong Presence in Food Categoriesy Powerful brand image of dabury All india coverage of market y Expeansention of product line

y Since Dabur is a good brand with a good amount of its product range. So Nestle found it feasible to acquire Dabur.

y Nestle has a good marketing presence which can be seen by us

consumers. It is present across all corners of the nation. Soadding products of Dabur would be an added advantage tothem and products of Dabur can also be seen across allcorners which was earlier not possible before the Merger.

y Dabur had a weak management. Because of this they could not flourish as a company and there product range was only limitedover the years. Only chawanprash and real juices are hot selling items. So Nestle found it a good opportunity to acquire

Dabur.y Nestle has a strong base in the country. So acquiring Dabur

and increasing their product range is an advantage whichwould not only increase their turnover but also increase theproductivity.

y Nestle will have an advantage that they can use their existingteam to market the products of merged Dabur. The companywill not have to recruit new salesforce but would have to impart

extensive training to them



SWOT Analysis

The following is the SWOT analysis of Nestle on acquiring Dabur

Strengths

y Nestle is the Global food producer, located in over 100countries. Consistently one of the world's largest producers of food products, with sales in the USA in 2008 of $10 billion; salesand earnings in 2008 were better than expected, even in adownturned economy. Global sales in 2008 topped $101 billion.

y In 2008, Nestlé was named one of "America's Most AdmiredFood Companies" in Fortune magazine for the twelfth

consecutive year.

y Nestlé provides quality brands and products and lineextensions that are well-known, top-selling brands including:

Maggi, Boost, Maggi Ketchup, Polo, Toffees, Everyday DairyWhitener, Milk, Curd, Coffee Chocolate and Candy: Kit Kat, TollHouse, Butterfinger, Baby Ruth, Crunch Bar, the Willy Wonka Candyline.

On acquiring Dabur it has broadened its product mix and it hasincluded Chawanprash which is a hot selling item. It has alsoincluded Real Juices also a hot selling item. Dabur Honey, Vatikacoconut Oil are also some of the products included in the product mix.

y General Mills: subsidiary which makes Betty Crocker, Bisquick,Hamburger Helper, Pillsbury, Old El Paso, cereals, fruit snacks,

frozen pizza, canned soups, frozen vegetables, ready-madefrozen meals.

y Gerber: baby formula, prepared baby foods, baby cereals,water, juice, yogurt, foods for infants, toddlers andpreschoolers.



y Professional brands sold to restaurants, colleges, hotels, andfood professionals including Jenny Craig meals, Impact liquidmeals for trauma patients, liquid meals for diabetics, andOptiFast weight loss products.

y Successful due in part to their unquestionable ability to keepmajor brands consistently in the forefront of consumer's minds(and in their shopping carts) by renovating existing product lines, keeping major brands from slipping intosaturation/decline and having superior access to distributionchannels.

Weaknesses

y Their LC-1 division was not as successful as they thought it would be in France. In the late 1980s, Dannon entered themarket with a health-based yogurt, and become the top sellingbrand of yogurt; Nestlé's 1994 launch was behind the product life cycle curve in an already mature market and could not compete against a strong, established brand.

y Growth in their organic food sales division was flat in 2008,

even though the industry grew 8.9%.y Since 2004 the breakfast cereal industry has been under fire

from the FDA and the American Medical Association, both of which say that false claims of "heart healthy" and "lowercholesterol" need to be removed from packaging andadvertising. They have also been forced to reduce the amount of sugar in their products, as parent's advocates groupsclaimed they were contributing to the diabetes epidemic among

American children.

y General Mills is an experienced, established brand and are themarket leader in the USA, however, they have been lacking ininnovation, have not cashed in on the booming health foodcraze and have been behind in creating new, niche products,



especially in their yogurt division, where Yoplait is the onlybrand making a profit.

y In 2008, although their products did not carry the recalled

pistachios, several of their ice cream brands, Dryer's, Edy'sand Haagen-Dazs, were still plagued with bad PR and loss of sales.

y Since Dabur is an Indian brand it has a weakness that thereproducts are accepted only within the geographical boundariesof the country. Chawanprash being a health supplement iswidely accepted by the Indians. So the company shouldintroduce the new added products in the international markets

by educating the people of foreign countries about the benefitsof chawanprash.

Opportunities

y In today's health conscious societies, they can introduce morehealth-based products, and because they are a market leader,they would likely be more successful. Thus by introducingChawanprash under their umbrella it will sell like hot cakes.

y Provide allergen free food items, such as gluten free andpeanut free.

y They launched a new premium line of higher cacao content chocolates dubbed Nestlé Treasures Gold, in order to cash inon the "recession economy" in which consumers cut back onluxury goods, but regularly indulge in candy and chocolate.Americans want luxury chocolates, and high-end chocolate is

immune to the recession (so far), because it is an inexpensiveindulgence.

y Opened Nestlé Café's in major cities to feature Nestlé products.



y They can enter the international markets since chawanprash isa health supplement made up of herbal products and can bewidely accepted.

Threatsy Any contamination of the food supply, especially e-coli. Their

Toll House brand cookie dough was recalled in March of 2009because of e-coli. Outbreaks were linked to 28 states and theproduct had to be recalled globally. Nestlé has yet to find out how this happened, and is still investigating.

y They were affected by the pet food recall in 2007, in which 95different brands of dog and cat food were recalled due tocontamination with rat poison. Also in 2007, FDA learned that certain pet foods were sickening and killing cats and dogs. FDAfound contaminants in vegetable proteins imported into theUnited States from China and used as ingredients in pet food.

y Raw chocolate ingredient prices are soaring; dairy costs alonerose 50% in 2008, this cuts heavily into their profit margins andoften gets passed on to consumers, by shrinking the packaging

in a way that is almost unnoticeable-therefore the consumer ispaying the same prices for less product.

y They have major competitors, like Hershey's, Cadbury-Schweppes (owned by Pepsi), Lindt, Kellogg's, Starbucks,Quaker, Kraft Foods, Dannon, Del-Monte, Heinz, Frito-Lay(owned by Pepsi).

y Another threat which the company can come across is that

there are many other players operating in this competitiveworld and many other companies selling chawanprash. So tocounter this competition the company needs to maintain thequality of Dabur Chawanprash and enter the for



VALUATIONSOutput

Enterprise value

Present value of Free Cash Flow 2,612

Terminal Value 32,866Discount Factor 0.51

Present Value of Terminal Value 16,742

% of Enterprise Value 87%

Enterprise value 19,354

68% OF 19354 = 13161CR



ASSUMPTION & SOURCES

FOR VALUATION

1. SALES IS GROWING WITH SYNERGE2. COST IS REDUCING WITH THE BENEFIT OF ILIMINATING

DOUBLE DEPARTMENT3. BALANCE SHEET DATA TAKEN FROM ANNUAL REPORT OF

COMPANY4. BETA AND OTHER PERSENTAGE TAKEN FROM MONEY

CONTROL AND YAHOO FINANCE5. WE TAKING 68% STAKE WHICH IS HOLD BY PERMOTERS

MODE OF PAYMENT

50% SHARE OF NESTLE(6580CR)

30% DEBT(3948CR)

20% CASH(2632CR)



Documents

Introduction of Acquirer