6 February 2012
3QFY12 Results Update | Sector: Consumer
Marico
BSE SENSEX
S&P CNX
17,605
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,326
MRCO IN
614.4
173/112
-2/3/40
100.1
2.1
CMP: INR163
TP: INR185
Buy
Volume growth momentum continues:
Volume growth momentum continued for Marico (MRCO), led by
16% volume growth in the domestic business; consolidated organic volume growth was 13%. Increased
focus on rural markets was a key contributor to volume growth; share of rural sales has increased to 30% for
9MFY12 as against 27% in FY11.
Gross margin expands after six quarters of contraction:
Consolidated gross margin expanded by 120bp to
48.5% after six consecutive quarters of YoY margin decline; the expansion was led by price increases in the
domestic portfolio and fall in copra prices. Consolidated EBITDA margin contracted by 70bp to 11.5% due to
higher ad expenses (up 170bp) and staff costs (up 80bp). MRCO has booked prior period expenses of INR130m
pertaining to Kaya Middle East in 3Q; excluding this, EBITDA margin would have been higher by 120bp at
12.7%.
Upgrading estimates, stock recommendation:
We are revising our earnings estimate for FY13 by 12% and are
introducing our EPS estimate for FY14 at INR8.9. We are also upgrading our recommendation on the stock to
Buy.
This follows strong operating performance in 3QFY12 and improved visibility of higher medium-term
growth. Our SOTP-based target price is INR185 (we have valued the domestic consumer business at 22x
FY14E earnings, the international business at 12x FY14E earnings and Kaya at 0.7x sales).
Amnish Aggarwal
(AmnishAggarwal@MotilalOswal.com); Tel: +91 22 3982 5404

Marico
We expect Marico's (MRCO) core business comprising of Parachute Coconut oil to
witness uptick in margins as Copra prices have decline from a peak of INR6900/
quintal to current levels of INR4900/quintal. MRCO has very limited competition
in the branded space in this segment and strong pricing power is depicted in
strong volume growth of 11% in rigid packs for 9mFY12 despite 25% price increase
in past 15 months.
Saffola has grown volumes by 15% in the premium edible oil segment and the
brand is way ahead of competition (57% market share) with unique positioning
on wellness platform. We expect saffola to sustain volume growth despite 8-9%
price increase affected in Jan2012.
MRCO is emerging as one of the most aggressive players in the value added hair
oils segment. MRCO has increased volumes by 20% in 3Q and ~26% in 9mFY12 by
aggressive pricing, sales promotions and entry in Cooling oil and Ayurvedic Hair
oil segment. We believe that MRCO can sustain strong double digit volume growth
and market share gain in this segment as segment leaders like Dabur and Emami
are operating with fat margins in excess of 20% in these categories.
Although we remain concerned on lower margins in international business, it
contributes 25% to the topline and only 40% of this is inorganic. Bangladesh and
Middle East is ~60% of sales with margins in line with domestic margins. We note
that Indian consumer companies have done better with organic forays abroad
than acquisitions.
Kaya Sin care has been a positive surprise in the quarter despite pressure on
discretionary spends in the domestic market. Reorganization of business model
with shift in focus from “Cure” to “Cure+Care” has reduced cyclicality in the business.
We see a probability of Kaya business (including Derma Rx) turning profitable by
FY14.
MRCO has been paying a dividend of INR0.7 per year since FY07, we expect MRCO
to increase dividend payout which can act as a re-rating trigger.
We are increasing FY13 estimates by 12% and are introducing Fy14 EPS at INR8.9.
We are introducing SOTP valuation for MRCO with domestic consumer business
valued at 22xFY14E, International business at 12xFY14E and Kaya at 0.7xsales. we
upgrade the stock to Buy with a 12 month target price of INR185, a 15% upside.
Concall highlights: Saffola Oats and Parachute Body lotion evoke good
response in India, Bangladesh performance to improve with focus on non
PCO products.
Acceleration in volume growth in Parachute has been driven by recruiter packs in
rural markets; rural markets now contribute 40% to Parachute sales as against 35%
2 years back.
Of the new launches, Saffola Oats and Parachute Body Lotion have performed
well and now have 10% and 5% market shares respectively. Mgmt expects each
brand to register ~INR450-500m sales in FY13 which will be 2x of FY12 sales. Saffola
Rice has been under pressure; however MRCO is confident of the long term growth
potential of the brand.
Organic volume growth in the international business has been ~5% due to flat
volumes in Bangladesh (40-45% of international sales) mainly due to lower growth
in Parachute Coconut oil; with a combination of distribution expansion and new
6 February 2012
2

Marico
product introductions, MRCO expects sustained double digit growth in Bangladesh
in the coming quarters.
In Kaya, in spite of the difficult environment, SSS growth has been maintained
due to higher product sales and value services offered; mgmt expects this traction
to continue as its strategy as a total skin care solutions player pays dividends.
Key Metrics- Domestic Volume growth remains robust despite price increases (Gr. %)
1Q
Domestic Business
Parachute Rigid
Saffola
Hair Oils
Domestic Business
Kaya
Kaya Sales
Kaya SSS
14.0
18.0
27.0
11.0
3.0
-5.0
2Q
11.0
18.0
14.0
9.0
2.0
-3.0
3Q
5.0
13.0
31.0
19.0
11.0
10.0
4Q
5.0
14.0
21.0
30.0
11.0
6.0
FY11
10.0
16.0
17.0
17.0
7.0
2.0
1Q
10.0
15.0
32.0
14.0
2Q
10.0
11.0
26.0
14.0
3Q
13.0
15.0
20.0
16.0
24.0
7.0
21.0
14.0
16.0
15.0
Source: Company/MOSL
Domestic sales up 21%; volumes up 16% led by strong performance across
hair and edible oils
Volume growth momentum continued for Marico led by 16% volume growth in
the domestic business; consolidated organic volume growth was 13% for the
quarter.
Parachute (rigid packs) volumes grew 13%, the highest growth in the last 7 quarters
led by market share gains from regional players; volume growth in all packs was
11%. Growth was driven by the smaller recruiter packs and lack of competition
from regional players due to the inflationary RM environment.
Saffola continued to maintain its strong 15% volume growth trajectory. Other hair
oils posted a 20% volume growth which is impressive on a high base (31% in
3QFY11), boosted by increasing distribution of Parachute Advansed Ayurvedic oil
and Cooling oil as well as market share gains led growth in Shanti Amla (20% avg
market share in 3Q).
Increased focus on rural markets was a key contributor to volume growth; share
of rural sales has increased to 30% for 9MFY12 as against 27% in FY11. Modern
trade also boosted growth, with sales increasing 44% led by Saffola and value
added hair oils.
Parachute volume growth is expected to stay healthy led by increasing
penetration and market share gains. Saffola in the premium edible oil segment is
way ahead of competition (57% market share) with unique positioning on wellness
platform. We expect Saffola to sustain volume growth despite 8-9% price increase
affected in Jan2012.
MRCO is emerging as one of the most aggressive players in the value added hair
oils segment. MRCO has increased volumes by 20% in 3Q and ~26% in 9mFY12 by
aggressive pricing, sales promotions and entry in Cooling oil and Ayurvedic Hair
oil segment. We believe that MRCO can sustain strong double digit volume growth
and market share gain in this segment as various segment leaders like Dabur and
Emami are operating with fat margins in excess of 20%.
6 February 2012
3

Marico
Volume growth sustains at 13%
Consol sales led by volumes and price hikes in domestic business
Parachute volumes accelerate at 13%
Saffola volume growth at 15%
Source: Company/MOSL
Gross margins expand (after six quarters) by 120bp led by price hikes and
decline in copra prices; Saffola prices increased by 8-9% in January 2012
Consolidated gross margins expanded by 120bp to 48.5% after 6 consecutive
quarters of YoY margin decline;expansion was led by price increases in the domestic
portfolio and fall in copra prices; average corpa prices declined by 9% QoQ but
were still up 4% YoY. We note that average copra prices are down 8% in January as
compared to their 3Q average. However, edible oil prices continue to increase
with kardi and rice bran prices up 28% and 33% respectively.
Consolidated EBITDA margins contracted by 70bp to 11.5% due to higher ad
expenses (up 170bp) and staff costs (up 80bp). MRCO has booked prior period
expenses of Kaya Middle East to the tune of INR 130m in 3Q excluding which
EBITDA margins would have been higher by 120bp to 12.7%.
The continued surge in edible oil prices has prompted the company to pass on an
8-9% price hike across Saffola variants. We note that the previous 15-20% price
hike over the last 18-24 months passed on in Saffola has not impacted volumes;
the brand has posted its 11th consecutive quarter of double digit volume growth.
We expect core business comprising of Parachute Coconut oil to witness uptick in
margins as Copra prices have decline from a peak of INR6900/quintal to current
levels of INR4900/quintal. MRCO has very limited competition in the branded
space in this segment and strong pricing power is depicted in strong volume growth
of 11% in rigid packs for 9mFY12 despite 25% price increase in past 15 months.
6 February 2012
4

Marico
Gross margin expansion of 120bp; EBITDA margin contraction of 70bp due to one off expenses
Source: Company/MOSL
Copra prices down 9% QoQ; trending lower
Rice bran and kardi oil prices up 33% and 28% respectively
Source: Bloomberg/Company/MOSL
Margins to expand now with copra prices declining
Source: Company/MOSL
International business sales up 39%; organic growth at 16%; Bangladesh
business remains under pressure
Marico’s international business has posted 39% sales growth during the quarter
led by new acquisition of ICP in Vietnam; organic growth was 16%.
Margins in the international business were at 11%; we note that Bangladesh (~45%
of international business) posted 1% growth for the quarter with margins declining
by 660bp to 9.2% due to higher branding and distribution expenses.
Market share in Bangladesh for Parachute was at 69%; hair code has maintained
share; new launches of Parachute Advansed cooling oil and Parachute Advansed
Beli are performing well.
6 February 2012
5

Marico
Although we remain concerned on lower margins in international business, it
contributes 25% to the topline and only 40% of this is inorganic. This compares
favorably to domestic peers which have a larger share of acquired international
businesses. Bangladesh and Middle East is ~60% of sales with margins in line with
domestic margins. We note that Indian consumer companies have done better
with organic forays abroad than acquisitions as is evident with the performance
of Marico in Bangladesh and Egypt and Dabur in GCC and Africa
IBD: Bangladesh and Middle East are 60% of sales
Source: Company/MOSL
Kaya: Healthy 15% SSS growth; adjusted losses only at INR15m
Kaya Skin Care reported sales growth of 21% at INR750m; SSS growth of 15% and a
PBIT loss of INR INR145m. The financials were impacted by change in accounting
policy of sales, amortization of intangible assets and one-time prior period
expense on Kaya Middle East to the tune of INR130m. Excluding one-time expense,
Kaya’s EBIT loss is only INR15m as against INR75m in 2QFY12.
MRCO has strengthened its systems and processes in the entire international
business including Kaya to prevent reporting errors.
Kaya Skin care has been a positive surprise in the quarter despite pressure on
discretionary spends in the domestic market. We note that in periods of slowdown
in FY09 and FY10, the company had witnessed SSS declines; reorganization of
business model with shift in focus from “Cure” to “Cure+Care” has reduced
cyclicality in the business. The increase in share of products (from 20% to 23%) has
further driven growth.
We expect SSS growth to be maintained in double digits; though in the near term
losses will continue, the business is on a gradual path to achieving profitability
and is likely to turnaround by FY14.
Vauation and view - Domestic business on strong footing; Upgrading FY13
EPS by 12%; Upgrade to Buy with target price of INR185
We are upgrading our rating on Marico to Buy. This follows strong operating performance
in 3QFY12 and improved visibility on higher growth in the medium term. We are
increasing FY13 estimates by 12% and are introducing Fy14 EPS at INR8.9. We are
introducing SOTP valuation for MRCO with domestic consumer business valued at
22xFY14E, International business at 12xFY14E and Kaya at 0.7xsales. We upgrade the
stock to Buy with a 12 month target price of INR185, a 15% upside.
6 February 2012
6

Marico
Marico: an investment profile
Company description
Marico has emerged as a dominant player in the Hair
care and edible oil segment. Marico is has also made
inroads in the international markets. Entry into skin care
clinic reaffirms the management focus on wellness.
Recent developments
National launch of parachute Advansed body lotion
in the skin care space
Valuation and view
EPS estimates are INR5.4 for FY12 and INR7.1 for FY13
The stock trades at 30x FY12E and 23x FY13E.
Buy
Key investment arguments
We are positive on the long term growth strategy of
the company and its successful forays in expanding
overseas as well as developing new products for the
domestic markets.
The company has been able to leverage its existing
brands by entering in the new categories.
International operations are gaining traction due to
acquisition of Fiancee and Haircode brands in Egypt
and entry into South African market.
Sector view
We have a cautious view on the sector given the
slower income growth in the economy which might
impact volumes as well as profit margins of
companies.
Companies with low competitive pressures and
broad product portfolios will be able to better
withstand any slowdown in a particular segment.
Longer term prospects appear bright, given rising
incomes and low penetration.
Key investment risks
Volume growth to tend lower due to rising
inflationary environment, thereby pressurizing
consumer wallets.
Copra price fluctuation poses risk to the profitability
in the core business of pure coconut oil despite
change in the pricing policy and improved pricing
power of the company.
Comparative valuations
Marico
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
30.1
22.8
8.6
6.4
2.5
2.1
20.2
15.5
GCPL
25.5
20.1
6.8
4.7
3.4
2.7
19.2
15.0
Dabur
26.9
22.4
9.8
8.0
3.3
2.8
20.2
16.6
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
5.4
7.1
Consensus
Forecast
5.1
6.6
Variation
(%)
5.5
8.9
FY12
FY13
Target price and recommendation
Current
Price (INR)
163
Target
Price (INR)
185
Upside
(%)
13.7
Reco.
Buy
Stock performance (1 year)
180
Ma ri co
Sens ex - Rebas ed
Shareholding pattern (%)
Sep-11
Promoter
Domestic Inst
Foreign
Others
6 February 2012
62.8
5.1
25.7
6.4
Jun-11
62.9
4.2
26.4
6.5
Sep-10
63.0
5.2
24.5
7.3
150
120
90
60
Feb-11
May-11
Aug-11
Nov-11
Feb-12
7

Marico
Financials and Valuation
6 February 2012
8

Marico
N O T E S
6 February 2012
9

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Marico
No
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No
No
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