Billionaire Burmans Bet on Teeth to Add Profit: Corporate India

Dabur India Ltd., the household goods maker controlled by the billionaire Burman family, will compete with Colgate-Palmolive Co. selling toothpaste for sensitive teeth as it offers more expensive products to reverse a slide in margins.

The 128-year-old company is developing the new toothpaste and plans to start sales before March 2014, Chief Executive Officer Sunil Duggal said in a telephone interview. Dabur will also get more of its higher-margin products such as Uveda skin cream to its network of 5.8 million retailers, he said.

Duggal has streamlined Dabur’s distribution network over the past three years, reducing the number of sellers and merging divisions to cut costs and strengthen its reach, especially in rural areas. Now, he is increasing focus on higher-priced, specialized products such as the toothpaste for sensitive teeth to help boost quarterly profit margins that have narrowed year-on-year since the three months ended March 2011.

“Substantial amount of growth will come from the skincare, beverage, home care portfolios,” Duggal said. Sensitive teeth “is a wide ranging ailment and the current products are available at very high prices, so we’re seeing whether we can deliver something which is of good value.”

Dabur, which is the third-biggest seller of toothpaste in the country, will compete with the local units of Colgate-Palmolive and GlaxoSmithKline Plc for a piece of the toothpaste market for sensitive teeth.

Toothpaste Opportunity

The toothpaste market in Asia’s third-biggest economy is estimated to expand at an average annual pace of 9 percent for the next three years and will be worth 74 billion rupees ($1.4 billion) by 2016, according to Euromonitor. Colgate-Palmolive leads the market, followed by Unilever’s local unit and Dabur with a 13 percent share.

The company, based in Ghaziabad near New Delhi, gets the bulk of its oral care revenue from the low-priced Babool toothpaste and the mid-range Red toothpaste. It is now looking to expand its portfolio to tap opportunities in a market where usage is low. Oral care accounts for 17 percent of its consumer care business.

Glaxo’s Sensodyne and Colgate’s Sensitive toothpaste cater to customers with teeth that hurt when they eat or drink certain foods. Sensitivity is not a disease, and is a common dental problem that develops due to receding gums, vigorous tooth brushing and grinding, according to a Glaxo website.

The nascent market for these niche products is worth about 2 billion rupees and is growing at about 25 percent annually, Duggal said.

Multinational Challenge

Dabur’s biggest challenge will be to change consumer perceptions in the specialized toothpaste category, said Sachin Bobade, an analyst at Brics Securities Ltd..

“Everyone will look at multinational companies like Colgate because it’s a leader in the category” for specialized toothpastes, said Bobade, who rates the Dabur stock the equivalent of market perform. “Dabur will have to spend a lot in advertising to establish itself and I’m not sure customers will be willing to pay a premium for it.”

Dabur’s revenue rose 12.3 percent in the three months ended December, the slowest pace since the quarter ended June 2010, according to data compiled by Bloomberg. The earnings before interest, tax, depreciation and amortization margin narrowed to 16.5 percent in the quarter ended March 31 from 17.2 percent in the year earlier period, according to data compiled by Bloomberg.

Chairman Anand Burman, along with his family, controls 69 percent of the company, a stake worth about $3 billion, according to data compiled by Bloomberg.

Shares Climb

Shares of Dabur rose 0.2 percent to close at 134 rupees in Mumbai, snapping three days of losses. The stock has gained 4 percent this year, compared with a 3.6 percent decline in the benchmark S&P BSE Sensex.

The per capita consumption value of toothpaste in India is $0.4, compared with $2.9 in Malaysia and $2 in Thailand, according to a February presentation posted on its website. Also, about 42 percent of India’s rural population uses toothpaste, compared with 77 percent in urban centers.

Per-capita consumption of skincare products in India is also less than a 10th of that in Malaysia and Thailand.

The push comes after Dabur in December started selling its products directly in 29,805 villages, up from 14,865 in March 2011. This expansion was made in 10 of India’s 28 states, which account for about 72 percent of the nation’s rural consumer products potential, according to the company.

“Skincare and home care have got couple of years of very high growth in front of them,” Duggal said. “We’ll try to push the higher-margin and higher-price products in rural markets too.”

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