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Cadbury India Limited

General

Registered Office: "Cadbury House", 19, Bhulabhai Desai Road, Mumbai - 400026 Telephone: 022 - 4939558 Fax: 022-4938698 Website: N.A Listing: BSE, NSE. BSE Code: 500793 NSE Code: CADBURY Reuters: CADB.BO

Background A 51% subsidiary of the Cadbury Schweppes UK, Cadbury India enjoys leadership position in Chocolate segment in India. The brand name 'Cadbury' is synonymous with chocolates in India. The company has leading brands in all segments viz. 5 star (countlines), Dairy Milk (bars), Gems (panned confectionery), Eclairs (toffees) and Perk (wafer chocolates).

Shareholding Pattern

The share capital of the company is Rs. 35.7 crore and the number of total shares outstanding amount to 3.57 crore. The face value per share is Rs.10. The share is currently trading at Rs. 418, as on May 22, 2001. The market capitalization of the company is Rs.1990.52 crore. The parent Cadbury Schweppes holds 51% stake in the company.

Board of Directors

C Y Pal - Chairman Matthew Cadbury - Managing Director Rajiv Wahi - Vice Chairman Jaithirth Rao - Director S N Talwar - Director Rajeev Bakshi - Director Harsh Mariwala - Director N V Iyer - Director David Kappler - Director B Puri - Executive Director P Chhaya - Executive Director J Strydom - Executive Director G Sridhar - Executive Director G M Bhat - Executive Director Business Overview Cadbury India's main source of revenue is its 70% bite of the 23,000 tonnes Indian chocolate market. It is also present in the malted food market (Bournvita enjoys a 24 percent share of the 20,000 tonnes brown drinks market). Of late, the company has ventured into the 120,000 tonnes sugar confectionery market ('Googly') and has gained about 5% market share there. The revenue break up of its different business segments is as follows:

Despite the fact that Indians have strong affinity for sweets, the size of domestic confectionery market is small on account of traditional consumer tastes and habits. The Chocolate market in India is a niche market penetrated largely in urban areas and per capita consumption is low as compared to those in developed countries of the West. But future prospects of the chocolate category looks good as the company plans to move into the arena of snack foods, as it has done in the Western markets. The market for Malted food drinks is large and is characterized by a few large players. The market can be broadly segmented into white malted food drinks which dominates in the Southern and the Eastern parts of the country and Brown Malted food drinks which dominate in the North and the West. Large brands like Bournvita and Horlicks dominate in Malted food drinks sector and the growth has been steady in the last five years. The future mission of Cadbury India is 'A Cadbury in Every Pocket'. The company's business strategy

hinges on following for driving its future growth: Increase the width of chocolate consumption, through low price point packs and distribution focus. Increase depth of consumption, targeting regular chocolate consumers through generating impulse and a dominant presence at Point of Sale. Maintain image leadership through a superior marketing mix. Be a significant player in the gifting segment, through occasion linked gift packs. Build critical mass in the sugar business by introducing value-added sugar confectionery products.

Future revenue growth will be through increasingly higher volumes rather than price increases. The management believes that price increase can only be a short term objective. It is volumes, which are very important to achieve the long-term goal of having a wide consumer base. The company sees its growth in future in market expansion and new product launches. Increased reach, new launches, higher marketing spend and intensive promotions - the mix, Cadbury is looking at to fuel its future growth. The company is also looking for acquisition of brands, and its huge cash reserves might be utilized for the purpose. Performance of segments

Items Malted Foods Cocoa Powder and Drinking Chocolates Chocolates, Coated Wafer Biscuits and Sugar Confectionery. Products The company manufactures and sells Chocolates Sugar confectionery Malted foods, Cocoa powder, Drinking chocolate and malt extract

Sales Value (Rs.Lakhs) 12/1999 12/2000 %Change 11436.90 13144.75 747.22 723.94 14.93% -3.12% 11.10%

38923.60 43245.03

Established brands of the company in the Chocolate segment includes Dairy Milk, Perk, Crackle, 5 Star, Eclairs and Gems. The main brands in sugar confectionery category are Googly, Frutus and Gollaum. In the malted health category, Cadbury has a strong brand in Bournvita. Other food drinks offered by the company are Cadburys Drinking Chocolate and Cadburys Cocoa powder. The company is also into the business of Soft drink and has drinks like Canada Dry and Crush. SWOT Analysis

Strengths: Strong brand names like Cadbury Dairy Milk, Five star and Eclairs. Rich product mix. Support from the parent Cadbury Schweppes. Weaknesses: Lack of launch of new brands in Chocolates segment. Opportunities: The Indian market and more specifically the urban areas where the penetration of Chocolates is low can be developed as a future market through affordability and availability. Using information and technology to bring efficiency in logistics and distribution. Threats: Stiff competition in Confectionery segment. The company has large exposure to foreign currency exchange rate risk, mainly on account of imported cocoa beans and cocoa butter in US Dollar and Pound Sterling.

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Cadbury India Ltd.

May 4, 2001 Success of Corporate Governance
INTRODUCTION Cadbury India can be termed as one of the best performing FMCG companies today. Unlike its peer group, which are more of complete food companies, Cadbury is a very niche player with a dominant position in Indian Chocolate Confectionery market. This makes it different & more successful in comparison with the peer companies. Now is the period of slowdown in the economy, where FMCG companies are the first ones to be hit upon. Reduction in the real income of the consumer has made its direct impact on the top line growth of the company. Still, Cadbury has been able to drive its bottom- line growth. The reason for the success is the Corporate Governance practised in the organization. We update its growth, progress and current valuation in this report.

** Inside The Report **

Financials Valuations

Corporate Vision
o o Cadbury in every pocket Superior shareholder value

Cadbury is mainly into three segments Chocolates- out of total market size (volume) of 22500 tpa, Cadburys share has been 69.2 %. Sugar Confectionery out of the total market size (volume) of 163000 tpa, Cadbury enjoys 4 % market share in this category. Food drinks out of total market size (volume) of 73500 tpa, 14.2 % share has been rewarded to Cadbury in this segment.

Chocolate the impulse product The category of impulse product includes chocolates, biscuits, ice creams, salted snacks & soft drinks. But the fact is that out of 1.5 million. Retail outlet for FMCG goods in India, over two thirds out of these stock branded impulse products, but fewer than 25% sell chocolates. The current chocolate value share of the total impulse category is 6.1 %. Out of which Cadbury enjoys the share of 4.4%. The scenario is going to change as o o o Attitude & disposable income changes are favorable to impulse product. The main target segment, youth population, 47 % of urban India is growing. Child & gifting segments are expected to grow at a faster rate.

Thus, the growth might be seen as saturating in the short run but certainly not in the medium to long run. Chocolates bring 64% contribution to the revenue. Cadburys future plans for chocolate category is: Broadening the consumer appeal & extending its reach to newer markets. Cadbury is broadening its customer appeal via 450,000 outlets. More than 2100 distributors. With addition of 8 million. New consumers added in 2000, Cadbury has the loyalty of 60 million total consumers now. However, the customer addition is lower than expectation of more than 15 million a year. Cadbury is focusing on new channels & institutional sale as a means to growth. Child connectivity & gifting segment also being attempted as a new growth segment by the company. Sustained growth of market through aggressive product development. Cadbury plans to launch one new product every year. Striving for international quality in the products as well as processes. Focusing on cost competitiveness, productivity & innovative utilization of assets. Benchmarking the manufacturing costs within the Cadbury Group's 40 production facilities across the globe will do this. Thus, every year, this will definitely contribute to the value creation.

Sugar Confectionery segment Sugar confectionery contributes 12 % to the companys revenue. Cadburys future plans for this category is: Optimum utilization of distribution network & reach Introducing technologically differentiated value added sugar products Focus on quality & packaging Regular introduction of variants However, this is a commodity segment and the premium market here may not emerge very fast. Thus, we do not expect any major success for the company in the short run. Also, the company could look for acquiring some good brands here, which would enable them to position themselves strongly. Food Drinks Food drinks segment contributes 24 % to the revenue. Cadbury is at No. 2 position in food drinks market. It has positioned itself on the platform of taste & energy. To win a

continuous brand loyalty from the child segment, it has associated with children through programs such as Bournvita Quiz Contest. Cadburys future plans for this category is: To extend its positioning of taste & energy to adults To continue program with kids Increase association with kids through website bournvita.com Here, too the company is positioned more in the Brown segment. The White segment is represented by HORLICKS as a dominant brand. Thus, to that extent, Cadbury Indias growth may remain limited in this category. Here, too the company would look for acquisitions. Aggressive Sales & Distribution Efforts in Year 2000: The overall performance for the year 2000 has been encouraging. The companys success this year have been in the area of increasing the width of consumption of Chocolate confectionery by increasing consumer awareness of association of positive attributes such as goodness of milk with chocolate. In the year 2000, the company launched three new products milk treat, perk slims & chocobix. There was consolidation of new trade channels that were developed over the last three years. The strengthening of the chocolate contact with children through the introduction of new brands is being build upon. The child loyalty program Cadbury Wonder World was further accelerated during the year with over 23000 children being contacted. The sugar confectionery & malted food drinks businesses delivered healthy growths during the year. Good progress is being achieved in the virtual environment through a Cadbury Gift Shop, which was featured on prominent web-sites during the festive season. The corporate web-site continues to be a successful interface with consumers & the business community. Apart from business growth, the cost control measures have also paid. Material costs reduced by improved procurement of materials & reduced wastages. Similarly, manufacturing costs & interest costs are also kept under the control. There has been superior management of operating funds, working capital efficiencies & tighter control over capital expenditure. Apart, from the above-mentioned plans for the specific categories, Cadbury has planned to follow the following strategies, which shows its commitment towards its stakeholders in line with its Corporate Governance policy shareholders, customers, employees, suppliers & distributors. Providing high focus on Economic profit & a constant review of company & brand performance To drive low cost manufacturing Reducing manufacturing cost by enhancing supply chain efficiencies & further reduction in material costs To seek better trading margins Efficient utilization of scarce resources via brands & production capabilities Keep Capex close to depreciation Further improvements in working capital norms Effective use of properties Use of Information Technology for business improvement & cost reduction Enhancing organization capabilities through people by training & development, sharpening of culture work shops, performance linked incentives for managers & through people care index measurement Form business improvement projects making in-house project teams of senior managers work closely with CS Group & some well known consultants to identify new growth opportunities, improve manufacturing costs & supply chain processes & effective use of IT.

Financials
(Rs In Crores) Year End Dec 31 Sales Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation PBT Tax PAT Exceptional Items Net Profit Equity Ratios OPM (excl. Other Inc.) (%) OPM (incl.Other Income) (%) GPM(%) Tax / PBT(%) NPM(%) Cash EPS (in Rs.) EPS(in Rs.) 16.80 17.83 17.44 40.54 8.12 20.24 13.80 14.56 15.60 15.01 34.20 7.56 26.29 17.92 Q1 2001 149.91 1.87 151.78 124.72 27.06 0.59 26.47 5.75 20.72 8.40 12.32 -0.07 12.39 35.71 Q1 2000 139.34 1.72 141.06 119.05 22.01 0.83 21.18 4.98 16.20 5.54 10.66 0.16 10.50 23.80 % growth 7.59 8.72 7.60 4.76 22.94 NA 24.98 NA 27.90 NA 15.57 NA 18.00

The most notable point of Cadburys financials is its focus on value creation. The company has worked hard on saving its raw material costs in recent times. Earlier, as most of the Cocoa was imported, the landed cost was high. Now, the company has been able to develop local supplies to the extent of 50 per cent. This is directly contributing to its bottom line. In fact, in FY 2000, the company saved worth Rs. 14.93 crs on account of material costs only, in turn, help increase the bottom line.

Valuations
Cadbury has been enjoying a premium valuation in the peer group, especially in the last two-three years. This is more due to its consistent and superior, bottomline plus topline growth in our view than any other reason. As can be seen from the table down, Cadbury enjoys a higher PE and Market Cap to sales than the peers barring Nestle.

We believe, if Cadbury continues to outperform the peers, which is difficult given the economic cycle, there may some drop in the valuation in short run but in the medium to long run, it would maintain such a premium valuation. Table Showing Relative Valuations
Particulars CMP P/E Mkt cap / sales Cadbury 460.00 30.50 2.88 Nestle 554.50 41.10 3.19 SKB 385.00 14.80 2.04 Britannia 688.30 29.20 1.44

For further clarifications/ suggestions please contactKRC Research 91-22-830 4923

Disclaimer: This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information

91-22-820 5311

KRC Sales 91-22-233 8050

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contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Securities Pvt. Ltd. and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

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