Marico-RU1QFY2013

7/31/2019 Marico-RU1QFY2013

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

EBITDA 185 125 47.7 110 68.0

OPM (%) 14.6 12.0 257bp 12.0 260bp

Source: Company, Angel Research

For 1QFY2013, Marico posted a 21.7% yoy growth in its consolidated net sales to

`1,267cr, aided by a robust volume growth. The operating margin for the quarter

rose by 257bp yoy to 14.6%. The growth in the OPM was led by a healthy 656bpexpansion in gross margin to 49.4%. The improvement in margins was due to

lower copra prices, a major raw material in the manufacture of coconut oil. The

adjusted profit for the quarter grew by 45.7% yoy to `124cr.

The overall volume growth for the quarter stood

at 14%. Volume growth in the consumer products business in India stood at

~16%, with Parachute(rigid packs) reporting ~18% yoy volume growth and

Saffolas (refined edible oil) volume growing by ~12% yoy. The companys

volume market share in the branded coconut oil segment in India (represented by

Parachute and Nihar) stood at 56.5% for 1QFY2013 (vs. 53.1% in 1QFY2012).

Saffola has maintained its leadership position in the super premium refined edible

oils segment with a market share of 58.3% for 1QFY2013 (vs. 53.3% in

1QFY2012). The international business (IBG) grew by ~17% yoy during the

quarter. However, organic growth for the IBG segment stood at a mere ~3% yoy,

with the remaining 14% yoy growth coming on account of forex gain.

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 22.5x 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 30.7 24.6

EBITDA (%) 13.3 12.1 13.1 13.1

P/E (x) 49.3 36.7 28.1 22.5

P/BV (x) 12.8 10.2 7.7 5.9

RoE (%) 36.5 30.8 31.4 29.7RoCE (%) 24.9 23.0 26.5 26.6

EV/Sales (x) 3.9 3.0 2.4 2.0

EV/EBITDA (x) 29.3 25.4 19.4 16.3


CMP `191

Target Price -

Investment Period -

Stock Info

Sector

Net Debt (`cr) 308

Bloomberg Code MRCO@IN

Shareholding Pattern (%)

Promoters 59.8

MF / Banks / Indian Fls 3.6

FII / NRIs / OCBs 29.4

Indian Public / Others 7.2

Abs. (%) 3m 1yr 3yr

Sensex 6.9 2.5 17.0

MRCO 5.4 17.4 138.4

FMCG

Market Cap (`cr) 12,278

Beta 0.2

52 Week High / Low 200/134

Avg. Daily Volume 70,260

Face Value (`) 1

BSE Sensex 17,558

Nifty 5,320

Reuters Code MRCO.BO

022-39357800 Ext: 6831

[email protected]

022-39357800 Ext: 6503

[email protected]

Performance Highlights

Marico | 1QFY2013 Result Update

August 10, 2012


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May 9, 2012 2

Exhibit 1:Quarterly Performance (Consolidated)

Consumption of RM 641 595 7.7 426 50.4 2,425 2,099 15.6

(% of Sales) 50.6 57.2 46.5 52.0 52.5

Staff Costs 95 71 34.3 84 13.3 336 307 9.4

(% of Sales) 7.5 6.8 9.1 7.2 7.7

Advertising 156 97 60.3 119 31.4 523 449 16.4

(% of Sales) 12.3 9.3 12.9 11.2 11.2

Other Expenses 191 153 24.4 179 6.5 784 668 17.4

(% of Sales) 15.1 14.7 19.5 16.8 16.7

OPM 14.6 12.0 257bp 12.0 260bp 12.8 11.9Interest 17 10 73.7 11 50.6 25 42 (40.4)

Depreciation & Amortisation 19 17 14.4 19 1.4 83 73 14.6

Other Income 18 9 92.7 11 67.5 29 43 (32.7)

29.2

Extr Income/(Expense) - - (2) - 2

(% of Sales) 13.1 10.3 9.6 11.1 10.1

Provision for Taxation 40 21 91.4 19 113.4 104 78 32.8

(% of PBT) 24.2 19.6 21.4 20.0 19.4

Minority Interest 2 2 (0) 8 5

PATM 10 8 8 9 8

Equity shares (cr) 61 61 61 61 61


Exhibit 2:Actual vs Angel estimates1,267 1,167 8.6

185 163 13.1

14.6 14.0 58

124 111 11.3



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May 9, 2012 3

Exhibit 3:Segmental performance (Consolidated)

a) Consumer Products 1,190 981 21.3 839 41.8

1)Domestic 934 762 22.6 620 50.6

2)International 256 218 17 218 17

b) Skin Care 81 63 29 74 8

a) Consumer Products 202 134 50.3 122 66.1

1)Domestic 185 118 56.5 109 70.4

2)International 17 16 5.2 13 30.1

b) Skin Care (7) (6)

(4)

a) Consumer Products 17.0 13.7 14.51)Domestic 19.8 15.5 17.5

2)International 6.7 7.4 6.0

b) Skin Care (9.0) (8.9)

(5.1)


Double-digit volume growthin Parachute and Saffola

For 1QFY2013, Marico reported a robust top-line growth of 21.7% yoy to

`1,267cr. The growth was driven by a mix of value and volume growth, with core

brands Parachute (rigids) andSaffola posting volume growth of ~18% and ~12%,

respectively for the quarter. The value added hair oils posted a volume growth of

~25%. The companys volume market share in the branded coconut oil segment

in India (represented byParachute and Nihar) stood at 56.5% for 1QFY2013 (vs.

53.1% in 1QFY2012).

During the quarter, Saffolas volume grew by a healthy ~12% yoy. Saffola has

maintained its leadership position in the super premium refined edible oils

segment with a market share of 58.3% for 1QFY2013 (vs 53.3% in 1QFY2012).

The brand, which was earlier in the healthy and premium edible oil category, has

been extended to the premium variety of rice under the brand Saffola Arise.

Saffola, with a ~12% value market share in the oats category, has emerged as the

number two player in the category.

Value added hair oils posted volume growth of 25%. In the hair oil category, the

company has recently launched Parachute Advanced Ayurvedic hot oil, Parachute

Advanced Ayurvedic cooling oil and Parachute Advanced Ayurvedic hair oil.


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May 9, 2012 4

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

Source: Company, Angel research

Exhibit 5:Parachute records robust 18% volume growth


Exhibit 6:Saffola bounces back to double digit growth


OPM up 257bp yoy, led by 656bp improvement in gross margins

Marico posted a 257bp yoy expansion in its OPM to 14.6%. The growth in the

OPM was led by a 656bp expansion in gross margins to 49.4%. The

improvement in margins was due to lower copra prices, a major raw material in

the manufacture of coconut oil. On an average, copra prices were down by 38%

yoy during 1QFY2013.

The increase in gross margins was to a large extent offset by a 296bp increase in

advertising expenditure. Advertising expenditure rose on account of higher

expenditure due to investments to support existing brands and new initiatives.

Consequently, the net profit recorded a robust 45.7% yoy growth to `124cr,

albeit on a lower base.

779

779

818

747

1,0

41

974

1,0

58

918

1,2

67

12.5 12.5

22.1 24.1

32.3

25.1

29.4

22.8

21.7

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

-

200

400

600

800

1,000

1,200

1,400

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

(yoy%)

(`cr)

Top-line (LHS) yoy growth (RHS)

14

10

5 5

10

6

13

11

18

-2

4

6

8

10

12

14

16

18

20

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

(%)

1818

13

15 15

11

15

3

12

-

2

4

6

8

10

12

14

16

18

20

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

(%)


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May 9, 2012 5

Exhibit 7:Gross and operating margins


Exhibit 8:Earnings performance


International business registers 17% yoy growth largely on backof forex gains

Maricos International FMCG Business Group (IBG) recorded ~17% yoy growth in

1QFY2013 and registered a turnover of `255cr. However, organic growth for the

IBG segment stood at a mere ~3% yoy, with the remaining 14% yoy growth

coming on account of forex gain. The business now constitutes around 24% of the

groups turnover.

High inflation, slowing GDP growth and a sharp depreciation in the Bangladeshi

Taka has led to a 2% decline in revenues from Bangladesh. However, on a positive

note, Parachute continues to hold a market share of ~80% and Hair Code hair

dye reported a market share of ~29%, thus establishing itself as the number 1

player in the hair dye market in the country. During the quarter, Marico introduced

variants of value added hair oils under the brand Nihar. In all, Bangladesh

contributed around 40% of the overall sales of IBG.

The Middle East and North Africa (MENA) region witnessed a better quarter due to

the improving overall business scenario. The Hair Code business performed well

during the quarter. Fiance was backed by campaign reinforcing its value for

money (VFM) positioning. Fiance also made a foray into the gel segment on the

VFM platform towards the end of the quarter. The MENA region grew by 5%

during 1QFY2013 and accounted for ~25% of IBG revenue.

South Africa which accounts for ~10% of the IBG revenue registered a 12% yoy

growth during the quarter. Caivil continued to be the market leader in the kids

hair care market. The company was able to capitalize on the downtrading in the

market due to its presence in the VFM segment through Black Chic.

In Vietnam, X-Men a leading mens grooming brand, gained market share

(currently enjoys 47% market share) due to the launch of a new campaign. X-Men

for Boss targeted at a slightly older audience is also performing well. During the

quarter, the male grooming range (shampoo and body wash) manufactured in

Vietnam was launched under the brand Code 10 in Malaysia. The South East Asian

business grew by 28% yoy during the quarter.

12.7 12.7 12.2 10.5 12.0 12.0 11.5 12.014.6

50.2 50.247.3 47.0

42.845.3

48.553.5

49.4

-

10.0

20.0

30.0

40.0

50.0

60.0

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

(%)

OPM Gross margin

72

72

70

(4)

57

59

84

71

124

14.8 14.8 11.8

(106.9)

15.39.4

21.0

(2.7)

45.7

(120.0)

(100.0)

(80.0)

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

(20)

-

20

40

60

80100

120

140

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

(%)

(`cr)

PAT (LHS) yoy growth (RHS)


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May 9, 2012 6

Kaya Skin Care Solutions

During the quarter, Kaya reported a turnover of `81cr. Same store sales in India

and Middle East grew by 12% yoy. Kaya has been sustaining the top-line growth

trend for the last seven quarters, recording a 29% yoy growth during the quarter.

However, it made a loss of `7.3cr at the EBIT level which includes a one-time

exceptional loss of `4.8cr on account of the proposed sale of Kaya Training Centre

building.

Integration of Paras personal care business

Marico has completed the integration of Paras personal care business in the

quarter. However, only`10cr worth of sales related to the Paras brands have been

accounted since the numbers include sales of the last 9 days of the quarter only.

Investment arguments

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

price hikes. Over the past few months, 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 the

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 the strong brands. The recent acquisitions made by the company too are

expected to contribute towards growth in future. At the current market price, the

stock is trading at 22.5x FY2014E EPS. We believe the stock is fairly priced and

hence,

Exhibit 9:Change in estimates

Revenue 4,667 5,427 4,840 5,643 3.7 4.0

OPM (%) 12.8 12.9 13.1 13.1 25.8 15.8

EPS (`) 6.6 8.1 6.8 8.5 2.8 4.3



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May 9, 2012 7

Exhibit 10:One-year forward P/E chart

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

Exhibit 11:Peer valuation

Asian Paints Neutral 35,670 3,719 - - 30.7 25.7 3.1 2.6 37.4 35.3 17.0 18.5

Britannia Buy 5,417 453 633 40 21.9 16.5 0.9 0.8 42.7 44.3 17.4 32.7

Colgate Neutral 16,039 1,179 - - 34.1 28.8 5.2 4.5 99.5 94.1 12.8 11.7

Dabur India Neutral 20,876 120 - - 26.8 23.2 3.4 2.9 43.2 41.4 15.3 18.3

Godrej Con Neutral 21,324 620 - - 27.2 22.8 3.5 3.0 31.2 30.0 20.1 26.7

GSK Con* Neutral 11,843 2,816 - - 27.0 22.8 3.4 2.8 34.4 32.8 16.8 21.0

HUL Neutral 107,063 498 - - 34.9 30.2 4.0 3.5 70.9 59.8 15.5 17.6ITC Neutral 208,281 268 - - 28.9 24.8 6.7 5.8 35.6 35.0 16.9 17.0

12,278 191 - - 28.1 22.5 2.4 2.0 31.4 29.7 18.6 27.6

Nestle* Neutral 42,487 4,407 - - 38.4 31.5 4.8 4.1 71.2 60.3 16.5 15.0

TGBL Neutral 8,222 133 - - 21.2 17.8 1.1 0.9 8.6 9.5 9.7 16.9

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 the 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.

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Jul-08

Sep-0

8

Nov-0

8

Jan-0

9

Mar-09

May-0

9

Jul-09

Sep-0

9

Nov-0

9

Jan-1

0

Mar-10

May-1

0

Jul-10

Sep-1

0

Nov-1

0

Jan-1

1

Mar-11

May-1

1

Jul-11

Sep-1

1

Nov-1

1

Jan-1

2

Mar-12

May-1

2

Jul-12

(x)


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May 9, 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 76 78

% chg 24.5 17.5 6.8 22.4 35.0 18.4

(% of Net Sales) 11.2 11.8 10.8 10.3 11.5 11.7

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 6.0 8.8

Share in profit of Associates 0 0 0 0 0 0

% chg 28.8 25.7 5.8 23.5 36.7 23.8

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

Tax 41 64 85 78 126 154

(% of PBT) 16.7 20.9 26.1 19.4 22.8 22.6

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 30.7 24.6

(% of Net Sales) 8.5 9.1 7.5 8.0 8.6 9.2

% chg 32.3 18.5 (1.6) 34.4 30.7 24.6

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

previous year numbers.


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May 9, 2012 9

Exhibit 12:Balance Sheet (Consolidated)

Equity Share Capital 61 61 61 61 61 61

Preference Capital - - - - - -

Reserves& Surplus 393 593 854 1,082 1,452 1,925

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 414 468 618 706 745 783Less: Acc. Depreciation 203 242 337 403 484 567

Capital Work-in-Progress 58 113 33 40 149 157

Goodwill 128 146 541 554 559 564

Long term loans and advances 99 123 123 123

Deferred Tax Asset 64 62 30 22 13 2

Current Assets 670 897 1,160 1,278 1,551 1,946

Cash 90 111 221 159 193 402

Loans & Advances 130 190 161 218 236 236

Other 450 596 779 902 1,122 1,308

Current liabilities 314 414 529 644 750 869

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




10/12


May 9, 2012 10

Exhibit 13:Cash flow StatementProfit before tax 230 298 376 401 550 681

Depreciation 36 60 71 73 76 78

Change in Working Capital (75) (135) (82) (45) (140) (70)

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

Direct taxes paid 41 64 85 78 126 154

Others 2 39 45 (73) 17 12

(Inc.)/ Dec. in Fixed Assets (95) (149) (465) (108) (153) (52)

(Inc.)/ Dec. in Investments (12) (71) (9) (226) (100) (200)

Issue of Equity 0 18 29 3 0 0

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

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

Inc./(Dec.) in Cash 15 21 110 (62) 34 209




11/12


May 9, 2012 11

Exhibit 14:Key Ratios

P/E (on FDEPS) 57.5 48.5 49.3 36.7 28.1 22.5

P/CEPS 48.4 38.5 32.8 30.0 23.8 19.6

P/BV 25.6 17.7 12.8 10.2 7.7 5.9

Dividend yield (%) 0.3 0.3 0.3 0.4 0.3 0.3

EV/Sales 5.1 4.6 3.9 3.0 2.4 2.0

EV/EBITDA 39.5 32.1 29.3 25.4 19.4 16.3

EV / Total Assets 14.5 10.8 7.4 6.4 5.4 4.5

EPS (Basic) 3.3 4.0 3.9 5.2 6.8 8.5

EPS (fully diluted) 3.3 3.9 3.9 5.2 6.8 8.5

Cash EPS 3.9 4.9 5.8 6.3 8.0 9.7DPS 0.7 0.7 0.7 0.7 0.7 0.7

Book Value 7.4 10.7 14.9 18.6 24.6 32.3

RoCE 35.7 32.5 24.9 23.0 26.5 26.6

Angel RoIC (Pre-tax) 49.6 43.0 39.4 39.0 40.8 40.7

RoE 53.0 43.6 36.5 30.8 31.4 29.7

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

Inventory / Sales (days) 52 61 70 66 66 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




12/12


May 9 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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Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

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the past.

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

connection with the use of this information.

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-RU1QFY2013

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