Marico Complete - Company Analysis
History
In 1997, Harsh Mariwala joined his family business - Bombay Oil Industries. Mr. Mariwala in 1974 sets up a national distribution network for the distribution of Parachute and there Mr. Mariwala begins his branded FMCG market for edible oil and coconut oil. 1990 Marico was started by Mr. Mariwala. In 1991, Marico launched 'Hair & Cair', a non-sticky hair oil. In 1996, Marico lists on Indian Stock Exchanges. In 2002, Marico starts its skincare clinic venture 'Kaya skin clinic'. And the company kept launching new products like Saffola Oats, Parachute Body Lotion, Set Wet, etc.Company Analysis
Marico is India’s 60th biggest company by Market Capitalisation. Marico is no. 3 in the FMCG – Personal Products segment based on its market capitalization. Marico has a market cap. more than Rs. 53,000 crore as of 30 January 2021. According to Marico 1 out of every 3 Indians use its products. Marico's brand portfolio includes brands in categories of hair care, skin care, edible oils, health foods, male grooming, and fabric care. It has an international brand portfolio including brands like Parachute, Hair Code, Medicare Safe Life, Hercules, Black Chic, X-Men, etc. Marico is present in over 25 countries across emerging markets of Asia and Africa. Marico has 8 manufacturing facilities in India and 5 international manufacturing facilities. Marico 23% share of international FMCG business. The market share of Marico is limited due to the presence of other strong FMCG brands. Marico has products that are in tough competition from other big domestic players and international brands. Market share of 59% and 73% in coconut oil(Parachute) and Super premium refined edible oil (Saffola). The company is facing intense competition among FMCG companies. It can merge with international and domestic companies to strengthen the brand and can also acquire big brands under their company. India is currently a $2 Trillion economy and is expected to grow into a $6 Trillion Economy by 2030. FMCG is the fourth largest sector in the Indian economy.
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Coconut Oil
Marico's coconut oil Parachute is 44% of Marico's Indian business. Due to Covid-19, the consumption slowed down. In volume terms, Parachute's market share increased by 268 bps when compared for FY19 and FY20. And when we get to the coconut oil portfolio of Marico (including Oil of Malabar and Nihar Naturals) the market share in terms of volume increased by 208 bps to 62% in FY20. Parachute's market share in rural areas is 47% whereas in urban areas its market share is 61%. The company expects an increase in rural spendings which brings an opportunity for the company to increase its market share. And the company believes in an opportunity for branded players where the company's Parachute Oil is a market leader. The company expects a 5-7% CAGR in Parachute Oil and the company would continue to invest in its brand building.
Did You Know: The tax on hair oil is more than the tax on edible oil. Parachute is not a hair oil it is edible oil.
Saffola
Saffola is 23% of Marico's Indian business Saffola grew 9% in terms of volume. Saffola's sales grew through both the medium through traditional retailers and even through E-Commerce. The company would continue to invest in brand building. And the company would continue to bring new packs with different pricing and would continue to find new ways to reach customers(channel strategy). Saffola's market share is up 360 bps to 76% in Super Premium Refined Edible Oil. The company also introduced its new 'Saffola Perfect Nashta' range which is of 3 minuted ready-to-cook mixes of traditional Indian breakfast. The company believes that growth in Healthy Foods Category can be achieved by bringing innovation in products.
Value-Added Hair Oils
The company's Value Added Hair Oil segment is 24% of the company's Indian business. Value-Added Hair Oils saw a decline in the volume of 2% compared to FY19, due to underperformance of the mid and premium segment. In rural company saw a subdued environment that flattened its growth in this category. The company is the market leader in this segment with a volume share of 35% and a value share of 26%.
Nihar Naturals Shanti Amla Badam: It is leading in the hair oil industry in volume sales among all its sub-brands under the Value Added Hair Oil category. The brand saw an upside in its market share by 64 bps in volume share in Amla Oils Category. The company's new launches "Hair & Care" and "Parachute Advanced Aloe Vera Enriched Coconut Hair Oil" are now scaled up to pan India level continued to post healthy growths.
For the poorest 2/3 population (bottom of the pyramid) company introduced new products "Nihar Shanti Jasmine" and "Nihar Natural Gold".
By using the following three strategies company aims to revive growth in this franchise:
(1) By continuing aggressive participation in the bottom of the pyramid
(2) Through pricing and brand renovation company would accelerate growth in the mid-segment.
(3) By innovations offering high order sensorial and functional benefits and through brand building company would aim to increase its market share in premium segments where the company is underrepresented
Premium Personal Care
Premium Personal Care is 5% of the company's Indian business. This segment comprises Premium Hair Nourishment, Male Grooming, and Premium Skin Care. In Premium Hair Nourishment Livon Serums posted high single-digit growth in FY20. The 2.5 ml sache pack was a key trial pack expanding the brand's reach in general trade. Livon has a dominating market share of 65%. In male grooming "Set Wet" has a market share of 55% in the styling category and "Set Wet Hair Waxes" also gained more market share in the overall styling segment. Parachute Advanced Men Hair Creams saw healthy growth with sustained momentum in the E-Commerce channel. The company has planned and focused initiatives to grow more in this franchise. In premium skincare, Kaya Youth company aims to build a larger portfolio. The company may see a low or no growth in this segment as consumers lower their spendings due to crisis.
Sales and Distribution
Marico has a reach of 5.1 million retail outlets. The company increased its direct distribution and now has reached 0.9 Million outlets. The company has a reach to 58,000 villages. One of the key pillars of Marico's long term growth is go-to-market transformation.
Marico's International business
The company had a turnover of Rs. 1,660 crore and saw a growth of 5% when compared to FY 19. Revenue contributed by-products saw growth from 2% in FY19 to 5% in FY20. Margins(before corporate allocations) also increased from 20.1% in FY19 to 21.5% in FY20.
Bangladesh
The company's Bangladesh entity Marico Bangladesh is 49% of its international business. It gave a double-digit growth for the third year in a row. Parachute Oil gave a 5% growth in FY20. And company's non-coconut oil portfolio saw a growth of 29% in FY20. The company's non-coconut oil portfolio is 30% of its total business in Bangladesh. The company aims to increase this to 35% till FY22 and the company would implement the learnings and strategies from India to scale up in Bangladesh.
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South East Asia
The South East Asia business of Marico is 26% of its international business. In South East Asia the business grew 4% in FY20.
Vietnam: Company's Vietnam business saw a 5% growth. To enable resource generation for brand building company has initiated an aggressive cost management program.
The Middle East and North Africa
The Middle East and North Africa are 12% of the company's international business. Here the business declined by 18% as the supply chain was disrupted in March 2020 due to Covid 19. The company is cautiously optimistic about the medium-term outlook of these markets as the crash in oil prices and volatile macro environment. The company will be aggressive on cost management to survive in Egypt.
South Africa
South Africa is 7% of the company's international business. Here the company saw a 5% decline due to the outbreak of Covid 19. In Q4 FY20 the company posted a loss of Rs. 10 crores. Here the company believes that the macros in this region continue to be weak. The company expects some revival in business over medium due to the launch of new products.
New Country Development and Exports
New Country Development and Exports is 6% of its international business. The company had expanded this business in markets like Nepal and Bhutan. Here company generated revenue of $14 Million in FY20. Here the business grew 33% in FY20. The company is positive about the future prospects of this business.
Financials
Quarterly Results
For FY 20 Marico's revenue from operations was Rs. 7,315 crore which is 0.3% lower than its revenue from operations of the previous year. But when we see revenue with other income there is an increase in revenue from Rs. 7,437 crore FY19 to Rs. 7,439 crore in FY20 just by Rs. 2 crores which is just 0.02%. So it can be said that the company's revenues were flat for FY20. But the profits saw a sharp decline of Rs. 93 crore or a decline of 8.3% in net profit. The company's operating margin was 20.1%.
The company had CAPEX of Rs. 194 crore, Debt of Rs. 338 crore and working capital of Rs. 1,397 crore. The company has a 42% return on capital employed. The company pays out 96% of its profit in the form of dividends. Due to covid Marico's supply chain was also affected in the month of March in 2020. The company has a string Balane Sheet with assets worth Rs. 5,002 crore. The company's cash flow increased from Rs. -3 crore in FY19 to Rs 45 crore in FY20.
Expenses
The company saved some money on the cost of raw material and the cost of raw material decreased from 54% of revenue in FY19 it became 51% of revenue in FY20. As oil prices saw some drop in FY20 it helped the company to reduce its cost on the raw material. The company slightly increased its cost of the advertisement. The cost of advertisement increased from 9% of revenue to 9.9% of revenue. Despite flat revenue company's EBITDA increased from Rs. 1,326 crore in FY19 to Rs. 1469 crore in FY20. Depreciation also increased from Rs. 131 crore in FY19 to Rs. 140 crore in FY20.
Valuation
Marico's stock is trading at a P/E of 46.4. It has an EPS of Rs. 8.88. The company's PEG ratio is 3.53. The company's Earning Yield is 2.84%. The company's Book Value is 28.5. The company's P/B ratio is 14.6. The company's P/S ratio is 7.12. The company's Dividend Yield is 1.62%. The company's EV/EBITDA is 32.2.
Conclusion
Marico is an excellent company but saw flat results for FY20 and as the FMCG sector saw the fastest recovery in Covid 19 and it can affect its FY21 although most of the companies FY21 results can be expected to be decreased when compared to FY20 due to outbreak of Covid 19. Marico has always provided its investors good returns and it has seen an amazing growth story. Holding or Buying Marico can always be a good decision but the valuation matters.
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