Mumbai:Dabur India Ltd on Tuesday said it was establishing a Sri Lankan subsidiary to cater to markets in southern India.
The company will invest Rs 70 crore in Dabur Lanka (Pvt.) Ltd, which will be a 100% export-oriented unit.
“There are benefits—both tariff and non-tariff—of the free trade agreement between Sri Lanka and India that makes production of processed foods cheaper and more cost effective there,” chief executive Sunil Duggal said. “With freight cost between Lanka and south India being cheaper, it will give us an opportunity to service this market where we have very small presence today with our juices.”
Sunil Duggal, chief executive officer, Dabur India Ltd. Photo: Bloomberg
The firm will commission a factory in August-September 2012 that will have a capacity to produce 280,000 cases of fruit-based beverages every month. One case consists of 12 packs of 1 litre.
This is the first time a consumer packaged goods company is setting up a wholly owned subsidiary outside India to cater exclusively to Indian markets, a company spokesperson said.
“It is cheaper to manufacture in Sri Lanka and will help ease the company’s supply chain constraints in India,” said Gautam Duggad, an analyst at brokerage Prabhudas Lilladher Pvt. Ltd.
Dabur’s Nepal unit, Dabur Nepal Pvt. Ltd, which has a production capacity of 600,000 cases per month, caters to 75-80% of the company’s Indian market for Real fruit juices. Real is a Rs 400 crore fruit juice brand, with over 90% of its revenue coming from the northern, eastern and western regions of the country. Overall, 85% of the company’s revenues of Rs 4,110 crore comes from these three areas, it said.
Dabur will face tough competition in southern India.
The southern part of the country contributes close to 30% of revenue of Godrej Consumer Products Ltd, the maker of Cinthol, executive vice-president Tarun Arora said.
Dabur’s Sri Lankan plant will employ around 75 and the staff strength will increase to around 200 by 2013-14, the company said.
For the quarter ended June, Dabur had a net profit of Rs 91.10 crore and revenue of Rs 848.17 crore. The company’s stock gained 1.18% to Rs 102.60 in Mumbai trading on a day the benchmark Sensex rose 2.95% to 16,524.03 points.