Marico-2QFY2013RU

7/30/2019 Marico-2QFY2013RU

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Please refer to important disclosures at the end of this report 1

Quarterly Result(Consolidated)

EBITDA 148 117 26.6 185 (20.1)

OPM (%) 12.8 12.0 80bp 14.6 (181)bp

Source: Company, Angel Research

For 2QFY2013, Marico posted an 18.6% yoy growth in its consolidated net sales

to`

1,156cr, aided by a healthy 14% volume growth. The highlight of the quarteris the healthy 619bp yoy expansion in gross margin to 51.5% due to substantial

decline in the prices of copra, a major raw material in the manufacture of

coconut oil. However, advertising expenses as a percentage of sales too rose by

402bp yoy resulting in the OPM expansion getting restricted to 80bp yoy.

The Indian consumer products business posted

a growth of 18% yoy, with volume growth coming at 17%. International business

posted a growth of 16% yoy. Organic volume growth (adjusted for the acquired

personal care business of Paras Pharmaceuticals, consisting of brands such as Set

Wet, Zatak and Livon) stood at 9% yoy. The Kaya business grew by 38%. The

OPM stood at 12.8%. Interest costs rose by 59.6% yoy due to acquisition of new

businesses and an office building. Tax rates too went up by 435bp yoy for the

quarter as the companys production from non-tax holiday units went up due to

higher demand. The net profit for the quarter grew by 9.7% yoy to `86cr.

Going ahead, we expect Marico to post a healthy growth

in the domestic business aided by its strong brands. The recent acquisitions made

by the company too are expected to fuel growth in the future. At the current

market price, the stock is trading at 26.4x FY2014E EPS. We believe the stock is

fairly priced and hence,

% chg 17.8 27.9 20.7 16.6

% chg (1.6) 34.4 24.6 26.3

EBITDA (%) 13.3 12.1 13.1 13.1

P/E (x) 53.2 39.6 33.3 26.4

P/BV (x) 13.8 11.1 6.7 5.4

RoE (%) 36.5 30.8 25.4 22.6RoCE (%) 24.9 23.0 22.8 21.6

EV/Sales (x) 4.4 3.4 2.8 2.4

EV/EBITDA (x) 33.0 28.6 21.7 18.2


CMP `206

Target Price -

Investment Period -

Stock Info

Sector

Net Debt (`cr) 429

Bloomberg Code MRCO@IN

Shareholding Pattern (%)

Promoters 59.8

MF / Banks / Indian Fls 3.3

FII / NRIs / OCBs 30.1

Indian Public / Others 6.8

Abs. (%) 3m 1yr 3yr

Sensex 7.4 7.6 17.0

MRCO 8.9 37.6 100.6

FMCG

Market Cap (`cr) 13,255

Beta 0.5

52 Week High / Low 217/134

Avg. Daily Volume 65,787

Face Value (`) 1BSE Sensex 18,902

Nifty 5,760

Reuters Code MRCO.BO

022-39357800 Ext: 6831

[email protected]

Performance Highlights

Marico | 2QFY2013 Result Update

November 7, 2012


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November 7, 2012 2

Exhibit 1:Quarterly Performance (Consolidated)

Consumption of RM 561 533 5.2 641 (12.6) 1,202 1,131 6.2(% of Sales) 48.5 54.7 50.6 49.6 56.3

Staff Costs 97 73 33.4 95 2.1 191 143 33.9

(% of Sales) 8.4 7.4 7.5 7.9 7.1

Advertising 159 94 68.4 156 1.8 314 186 69.0

(% of Sales) 13.7 9.7 12.3 13.0 9.3

Other Expenses 192 158 21.5 191 0.8 383 308 24.3

(% of Sales) 16.6 16.2 15.1 15.8 15.3

OPM 12.8 12.0 80 14.6 (181) 13.7 12.0

Interest 15 9 59.6 17 (14.7) 32 20 56.3

Depreciation & Amortisation 22 18 26.8 19 16.2 42 35 20.7

Other Income 8 11 (29.4) 18 (57.4) 25 22 13.0

36.6

Extr Income/(Expense) - - - - 2

(% of Sales) 10.2 10.3 13.1 11.7 10.4

Provision for Taxation 29 21 42.9 40 (27.2) 70 42 67.4

(% of PBT) 24.8 20.4 24.2 24.5 19.8

Minority Interest 3 2 2 5 3

PATM 7 8 10 9 8

Equity shares (cr) 64 61 64 64 61


Exhibit 2:Actual vs Angel estimates

EBITDA 148 161 (8.1)

OPM (%) 12.8 13.5 (77)



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November 7, 2012 3

Exhibit 3:Segmental performance (Consolidated)

a) Consumer Products 1,067 905 18.0 1,190 (10.3)1) Domestic 792 664 19.2 934 (15.2)

2) International 275 240 15 256 8

b) Skin Care 92 66 38 81 14

a) Consumer Products 147 128 14.6 202 (27.4)

1) Domestic 125 101 23.3 185 (32.5)

2) International 22 27 (18.4) 17 28.4

b) Skin Care 6 (5) (7)

a) Consumer Products 13.7 14.2 17.0

1) Domestic 15.8 15.2 19.8

2) International 8.0 11.2 6.7

b) Skin Care 6.2 (7.2) (9.0)


Double-digit top-line growth continues

For 2QFY2013, Marico posted an 18.6% yoy growth in its consolidated net sales

to `1,156cr. The Indian consumer products business posted a growth of 19% yoy,

with volume growth coming in at 17%. The international business posted a growth

of 16% yoy. Kaya business grew by 38%. While the overall volume growth stood at14%, organic volume growth (adjusted for the acquired personal care business of

Paras Pharmaceuticals, consisting of brands such as Set Wet, Zatak and Livon)

stood at 9% yoy.

Parachute rigid packs posted a growth of 14% with volume growth coming in at

9%. The company has been focusing on the rigid packs over the past few years as

they enjoy a higher margin as compared to pouch packs. The proportion of pouch

packs has now reduced to about 18% of the total Parachute sales in value terms.

During 2QFY2013 Parachute improved its market share by about 390bp during

the 12 month period ended September 2012.

Value added hair oils posted a growth of 23%, with a volume growth of 20%.

Marico has emerged as market leader in the value added hair oil segment, with a

volume market share of 25.3%.

The Saffola edible oils franchise grew by 6% in volume terms and 13% on an

overall basis. Volume growth in this premium edible oil brand decelerated due to

an overall slowdown in spending in the packaged food segment on account of its

discretionary nature. Further, an elevated pricing gap between safflower oil and

rice bran oil vs other edible oils such as sunflower oil too resulted in a lower

growth rate for Saffola. The company has rolled out Saffola oats on a national

basis.


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November 7, 2012 4

Exhibit 4:Top-line growth aided by robust volume growth

779

818

747

1,0

41

974

1,0

58

918

1,2

67

1,1

56

12.5

22.1

24.1

32.3

25.1

29.4

22.8 21.7

18.6

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

-

200

400

600

800

1,000

1,200

1,400

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

(yoy%)

(`

cr)

Top-line (LHS) yoy growth (RHS)

Source: Company, Angel research

Exhibit 5:Parachute records robust 9% volume growth

10

5 5

10

6

13

11

18

9

-

2

4

6

8

10

12

14

16

18

20

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

(%)


Exhibit 6:Saffola volume growth slips into single digit18

13

15 15

11

15

3

12

6

-2

4

6

8

10

12

14

16

18

20

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

(%)


OPM up 80bp yoy, led by 619bp improvement in gross margin

The highlight of the quarter is the healthy 619bp yoy expansion in gross margin

to 51.5% due to substantial decline in the prices of copra, a major raw material

in the manufacture of coconut oil. However, prices of some other key inputs such

as safflower oil and rice bran oil rose by 59% and 16% yoy respectively.

Advertising expenses too rose by 402bp yoy on account of higher expenditure

due to investments to support existing brands and new initiatives resulting in the

OPM expansion getting restricted to 80bp yoy.


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November 7, 2012 5

Exhibit 7:Gross and operating margins

12.7 12.2 10.5 12.0 12.0 11.5 12.014.6 12.8

50.247.3 47.0

42.845.3

48.553.5

49.451.5

-

10.0

20.0

30.0

40.0

50.0

60.0

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

(%)

OPM Gross margin


Exhibit 8:Earnings performance

72

70

(4)

57

59

84

71

124

86

14.8 11.8

(106.9)

15.3

9.421.0

(2.7)

45.7

9.7

(120.0)

(100.0)

(80.0)

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

(20)

-

20

40

60

80

100

120

140

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

(%)

(`cr)

PAT (LHS) yoy growth (RHS)


International business registers 17% yoy growth largely on back

of forex gains

Maricos International FMCG Business Group (IBG) recorded a ~16% yoy growth

in 2QFY2013 and registered a turnover of `275cr. The growth was aided by

favorable foreign exchange translation impact with constant currency growth

coming at 3%, which was largely price led.

Business environment in Bangladesh continues to witness an improvement

although there is much room for further improvement. Inflation continues to be in

double digits but Bangladesh Taka remained stable vs the USD. Parachute

continues to hold a market share of ~80% and Hair Code hair dye maintained amarket share of ~29%, thus establishing itself as the number 1 player in the hair

dye market in the country. The new manufacturing facility was completed and

commissioned in August 2012. Trial production has started and will be scaled in

the next quarter.

Maricos Middle East and North America (MENA) business grew by 6% during

2QFY2013. Egypt witnessed signs of recovery and the companys business in Egypt

grew by about 11% during the quarter.

South Africa which accounts for ~10% of the IBG revenue registered a flat

performance during the quarter impacted by the transportation strike during the

second fortnight of September 2012. Caivil consolidated its market leadership

position in the kids hair care market.

Maricos Vietnam business grew by 23% yoy in the quarter, despite the slowdown

witnessed in the country. X-Men maintained its leadership in male shampoos and

the number two position in male deodorants. Maricos Malaysian business

continues to grow at a very healthy rate. Code 10 has responded well to the brand

restage and the company has recently launched a range of extensions in male hair

styling.


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November 7, 2012 6

Kaya Skin Care Solutions

During the quarter, Kaya reported a turnover of `92cr. Same store sales in India

and Middle East grew by 10% yoy. Kaya has been sustaining the top-line growth

trend for the last eight quarters, recording a 38% yoy growth during the quarter.

Kaya reported an EBIT of `6cr for the quarter.

Investment arguments

Marico hasnot witnessed any significant slowdown in volume growth despite the steep

price hikes. Over the past few quarters, raw-material prices have been

softening; so, we do not expect any steep price hikes further. Going ahead, we

expect the company to post margin expansion over FY20121-4E due to

softening raw material prices.

The international businessnow contributes ~24% to the companys top-line. Marico maintains its

leadership position in different categories in different regions. We expect the

companys international business to post better performance going ahead due

to signs of improvement seen in the macro-environment in its international

markets.

Outlook and valuation

Going ahead, we expect Marico to post a healthy growth in its domestic business

aided by its strong brands. The recent acquisitions made by the company too areexpected to contribute towards growth in future. At the current market price, the

stock is trading at 26.4x FY2014E EPS. We believe the stock is fairly priced and

hence,

Exhibit 9:One-year forward P/E chart

Source: Company, Angel Research, Note: Blue line indicates 5-year average


7/12


November 7, 2012 7

Exhibit 10:Peer valuation

Asian Paints Neutral 39,423 4,110 - - 33.2 28.1 3.4 2.8 37.4 35.3 17.0 19.2Britannia Buy 5,615 470 584 24 22.7 18.5 0.9 0.7 43.1 41.9 17.4 27.4

Colgate Neutral 17,696 1,301 - - 35.8 30.6 5.4 4.8 101.9 98.5 15.2 13.8

Dabur India Neutral 22,338 128 - - 28.7 24.5 3.7 3.1 43.2 41.4 15.9 18.9

Godrej Con Neutral 23,758 698 - - 31.9 26.4 4.1 3.4 25.5 25.4 22.1 28.3

GSK Con* Neutral 12,852 3,056 - - 27.4 23.2 3.7 3.1 36.3 34.0 16.8 24.9

HUL Neutral 115,511 534 - - 36.3 31.3 4.4 3.8 70.9 59.8 15.5 19.7

ITC Neutral 226,577 290 - - 31.1 26.5 7.3 6.3 35.8 35.3 17.2 17.7

Nestle* Neutral 46,883 4,862 - - 42.4 34.8 5.4 4.5 71.2 60.3 16.5 15.0

TGBL Neutral 9,873 160 - - 24.2 20.4 1.3 1.1 8.2 9.5 9.7 16.6

Source: Company, Angel Research; Note: #Denotes CAGR for FY2012-14E;*December year ending

Company Background

Marico is one of India's leading FMCG companies, offering products in the beauty

and wellness segment. The company is present in over 25 countries across Asia

and Africa. The company offers products in the hair care, skin care and edible oils

segments. Marico's product portfolio includes brands such as Parachute, Saffola,

Hair & Care, Nihar, Mediker, Revive and Manjal. The company's brand Parachute

is a household name in India.


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November 7, 2012 8

Profit and loss statement (Consolidated)

Net Sales 2,388 2,661 3,126 4,008 4,840 5,643

% chg 25.4 11.4 17.5 28.2 20.7 16.6

Cost of Materials 1,278 1,262 1,618 2,099 2,504 2,908

Advertising Exp 243 351 346 449 542 632

Personnel 166 193 230 307 348 412

Others 398 480 524 669 813 954

% chg 23.4 23.4 8.6 19.0 30.4 16.6

(% of Net Sales) 12.7 14.1 13.0 12.1 13.1 13.1

Dep.& Amortisation 36 60 71 73 100 101

% chg 24.5 17.5 6.8 22.4 29.0 19.7

(% of Net Sales) 11.2 11.8 10.8 10.3 11.0 11.3

Interest & other Charges 36 26 41 42 39 37

Other Income 12 18 30 33 33 60

(% of PBT) 5.0 5.9 9.2 8.1 6.3 9.1

Share in profit of Associates 0 0 0 0 0 0

% chg 28.8 25.7 5.8 23.5 30.6 25.4

Prior Period & Extra Exp/(Inc.) 15 10 (49) 2 0 0

Tax 41 64 85 78 120 149

(% of PBT) 16.7 20.9 26.1 19.4 22.9 22.7

Add: Share of earn. of asso. - - - - - -

Less: Minority interest (MI) (0) 2 5 5 8 8

% chg 32.3 18.5 (2.4) 35.4 24.6 26.3

(% of Net Sales) 8.5 9.1 7.5 8.0 8.2 8.9

% chg 32.3 18.5 (1.6) 34.4 24.6 26.3

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable withprevious year numbers.


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November 7, 2012 9

Balance Sheet (Consolidated)

Equity Share Capital 61 61 61 61 64 64Preference Capital - - - - - -

Reserves& Surplus 393 593 854 1,082 1,927 2,380

Minority Interest 0 13 21 25 25 25

Total Loans 374 446 722 762 722 682

Long term Provisions 45 42 42 42

Other long term liabilities 1 1 1 1

Gross Block 414 468 618 706 1,446 1,446

Less: Acc. Depreciation 203 242 337 403 468 569

Capital Work-in-Progress 58 113 33 40 87 87

Goodwill 128 146 541 554 559 564

Long term loans and adv. 99 123 123 123

Deferred Tax Asset 64 62 30 22 13 2

Current Assets 670 897 1,160 1,278 1,625 2,064

Cash 90 111 221 159 258 520

Loans & Advances 130 190 161 218 276 236

Other 450 596 779 902 1,091 1,308

Current liabilities 314 414 529 644 750 870

Mis. Exp. not written off - - - - - -



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November 7, 2012 10

Cash flow Statement

Profit before tax 230 298 376 401 525 659

Depreciation 36 60 71 73 100 101

Change in Working Capital (75) (135) (82) (45) (149) (61)

Interest / Dividend (Net) 30 15 23 25 12 (16)

Direct taxes paid 41 64 85 78 120 149

Others 2 39 45 (73) (25) 7

(Inc.)/ Dec. in Fixed Assets (95) (149) (465) (108) (792) (5)

(Inc.)/ Dec. in Investments (12) (71) (9) (226) 150 (200)

Issue of Equity 0 18 29 3 500 0

Inc./(Dec.) in loans 16 72 277 40 (41) (40)Dividend Paid (Incl. Tax) 47 47 47 47 50 49

Interest / Dividend (Net) 30 15 23 25 12 (16)

Inc./(Dec.) in Cash 15 21 110 (62) 99 262



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November 7, 2012 11

Key Ratios

P/E (on FDEPS) 62.0 52.4 53.2 39.6 33.3 26.4P/CEPS 52.3 41.5 35.4 32.4 26.6 22.0

P/BV 27.6 19.2 13.8 11.1 6.7 5.4

Dividend yield (%) 0.3 0.3 0.3 0.3 0.3 0.3

EV/Sales 5.8 5.2 4.4 3.4 2.8 2.4

EV/EBITDA 44.5 36.2 33.0 28.6 21.7 18.2

EV / Total Assets 16.4 12.2 8.3 7.2 5.0 4.3

EPS (Basic) 3.3 4.0 3.9 5.2 6.2 7.8

EPS (fully diluted) 3.3 3.9 3.9 5.2 6.5 8.2

Cash EPS 3.9 4.9 5.8 6.3 7.7 9.3

DPS 0.7 0.7 0.7 0.7 0.7 0.7

Book Value 7.4 10.7 14.9 18.6 30.9 37.9

RoCE 35.7 32.5 24.9 23.0 22.8 21.6

Angel RoIC (Pre-tax) 49.6 43.0 39.4 39.0 33.9 31.9

RoE 53.0 43.6 36.5 30.8 25.4 22.6

Asset Turnover (Gross Block) 4.9 4.6 3.5 3.3 3.5 3.5

Inventory / Sales (days) 52 61 70 66 64 66

Receivables (days) 17 21 21 17 18 18

Payables (days) 42 46 53 52 51 51

Net working capital (days) 41 51 43 39 43 41



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November 7 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

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Disclosure of Interest Statement Marico

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Marico-2QFY2013RU

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