MARICO LIMITED SELL SIDE PITCHBOOK

COMPANY ANALYSIS INDUSTRY ANALYSIS BENCHMARKING SELLING RATIONALE POTENTIAL BIDDERS VALUATION

STRATEGISED BY INVIGENIUS INC UMANG JAIN, PIYUSH JAIN, SHASHANK JALAN, VIVEK CHOUDHARY, ANISH SANDHIR & SAURABH MALIK

COMPANY ANALYSIS
Incorporation Business Line Product Portfolio Incorporated in the year 1988 and got listed on the NSE and BSE in the year 1996 One of the leading consumer products and services company offering products and services in hair care, skin care and healthy foods markets HairCode, Fiancee, Aromatic, Kaya, Caivil, Black Chic, Oil of Malabar, Manjal, Revive, Mediker, Shanti, Nihar, Hair & Care, Saffola and Parachute

Service Portfolio- Also present in the Skin Care Solutions segment through Kaya Skin Clinics Kaya Skin Clinic in India, Middle East and Bangladesh and Derma Rx in Singapore International Presence Marico is present in more than 25 countries across Asia and the African continent & International portfolio includes brands like Fiance, HairCode, Camelia, Aromatic, Caivil, Hercules, BlackChic, Code 10 and Ingwe

Extension to Product Acquired Set Wet, Zatak and Eclipse which gives Marico an entry into the Line rapidly growing deodorants market. The Rs 1,200-crore deos category is registering over 40 per cent growth annually and is dominated by HUL's Axe with a 17 per cent share of the market
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COMPANY ANALYSIS
MARKET INDICATORS
PARTICULARS Market Cap P/E Book Value Div(%) Market Lot Industry P/E DETAILS Rs. 12,597.6 Cr 32.47 17.49 0.70 1.00 39.79 PARTICULARS EPS(TTM) P/C Price/Book Div Yield (%) Face Value(Rs) DETAILS 6.02 30.02 11.17 0.00 1.00 (INR Crore) Net Sales YoY Growth EBDITA EBDITA (%) PAT PAT (%)

BRIEF FINANCIALS
FY10 2,388 25.4% 304 12.73% 204 FY11 2,661 11.4% 375 14.09% 241 FY12 3,126 17.6% 407 13.02% 236 FY13E 4,008 27.8% 485 12.10% 319

8.54%

9.06%

7.55%

7.96%

SHAREHOLDING PATTERN
IN PERCENT Promoter Domestic Inst Foreign Others Jun-12 59.8 3.6 29.4 7.2 Mar-12 62.7 4.5 25.9 6.9 Jun-11 62.9 4.2 26.4 6.5

SEGMENTAL

COMPANY ANALYSIS
EXTENSIVE DISTRUBUTION NETWORK
Urban Sales Territories Towns Covered Distributors 135 4.1 750 Rural 49 27.0 -

Super Distributors
Pan India Presence

145
4100

Stockists

DISTRIBUTION Every month, over 75 Million consumer packs from Marico reach approximately 75 Million households, through a widespread distribution network of more than 4 Million retail outlets in India. (Source: Nielsen)

CREDIT RATING
Long Term Rating is CRISIL AA/POSITIVE and Short Term is CRISIL A1+
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INDUSTRY ANALYSIS
FMCG Industry Size (in Rs. Bn)
15.1%
1671

FMCG Industry Urban (in Rs. Bn)

15.8%
1111

FMCG Industry Rural (in Rs. Bn)

Source: AC Nielson
13.8%
559 491 CY 11 CY 10 CY 11

1451
CY 10 CY 11

960
CY 10

FMCG sector in India continued on a strong growth path with both Urban and Rural India contributing to growth. Rural India contributes to one third of FMCG sales in India Growth driven by increasing consumption led by rise in incomes, changing lifestyles and favorable demographics
Skin Care - Per Capita Consumption (in US$) Tooth Paste - Per Capita Consumption (in US$) Shampoo - Per Capita Consumption (in US$)

7.4 3.2
China

7.7

2.9 0.5 1
Indonesia

2.7
2
Thailand

2.4

0.8
Indonesia

0.3
India Malaysia Thailand

0.4
India Malaysia

1
China

1.1
Indonesia

0.3
India Malaysia Thailand

China

INDIA HAS VERY LOW PER CAPITA CONSUMPTION AS COMPARED TO OTHER DEVELOPING NATIONS
Source:MOSL

INDUSTRY ANALYSIS- GROWTH DRIVERS

Shift from unorganized to organized

Evidenced by growth in hair oil Current level of unorganized presence is a key driver for future volume growth

Rise in per capita category consumption

Level of per capita increase in consumption in the future is a key variable for future volume growth Demonstrated by recent strong growth in branded foods

Increase in Penetration
Category penetration continues to be abysmally low in various categories like instant branded foods,OTC,skin creams etc. indicating scope for volume growth through increase in penetration

Rural consumption
Driven by a combination of increasing incomes(MSPs, NREGs etc.) and higher aspiration levels, there is an increased demand for branded products in rural India

Above drivers aided by favourable demographics and rise in disposable incomes indicate that Indias consumption story is robust
AS PER A STUDY CONDUCTED BY BOOZ & COMPANY, FMCG SECTOR IS EXPECTED TO GROW IN THE RANGE OF 12% TO 17% UP TO 2020 AND WOULD TOUCH A MARKET SIZE BETWEEN RS, 4,000 TO RS. 6,200 BILLION BY 2020

INDUSTRY ANALYSIS
MARKET SEGMENTS:
Food products is the largest consumption category in India, accounting for nearly 21 per cent of the countrys GDP Some of the leading players in this segment include Britannia Industries Ltd, Dabur India Ltd, GlaxoSmithKline Consumer Healthcare India Ltd and Gujarat Cooperative Milk Marketing Federation (GCMMF)

REGULATORY FRAMEWORK:
Indian FMCG Market Segments
Baby Care 22% 5% 4% 4% 8% 2%12% Fabric Care Food Products Hair Care 43% Household OTC Products Others

Source:IBEF

OUTLOOK:
According to Nielsens research report, the Indian FMCG market is estimated to grow to USD 100 billion by 2025 from USD 13 billion in 2012 The key driving factors will be the growing population, the rising disposable incomes, education and the advent of modern retail.

The Government of India recognises food processing and agro industries as priority sectors Government has offered zero import duty on capitol goods and raw material for 100% export oriented units Government do announce subsidies but to avail of them is both confusing and time consuming State borders cause a lot of delays due to a requirement for multiplicity of permits

PEER COMPARISON
35 30 25 20 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Marico Marico GCPL Industry GCPL HUL ITC Industry

PBIT (%)

Operating Profit Per Share (Rs)

0 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Marico

10

20 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Marico

15
10 5 0 Marico Marico GCPL Industry GCPL HUL ITC Industry

GCPL

Industry

GCPL

HUL

ITC

2011

2010

2009

Net Profit Margin(%)

Cash Profit Margin(%)

Gross Profit Margin(%)

2011

2010

2009

2011

2010

2009

The share holders are also eyeing a better earnings in the years to come as the products are expected to be launched and projects executed.

In an expanding environment, Marico has consistently maintained its operating profit to a decent level which has seen an increase over the last few years.

The net profit margin has risen consistently despite the firm expanding its operation and in this scenarios so has the free cash available for the company. This should monitored so that free cash is available for the future plans

Industry

PEER COMPARISON
Having a Return on Net-worth and Capital Employed of over 20% even in an expansionary mode, has made the shareholders a happy lot, if not to be delighted.
150 100 50 0 Marico Marico Marico

The company has an average collectible period less than its competitors making its credit policy look healthy and the inventories are also being rolled over to generate maximum benefits.
120.00 100.00 80.00 60.00 40.00 20.00 0.00 Marico Marico Marico

HUL

GCPL

GCPL

GCPL

ITC

ITC

HUL

Industry

Industry

HUL

ITC

Industry

GCPL
2009

GCPL

GCPL

ITC

ITC

HUL

HUL

Industry

Industry

HUL

ITC

2011

2010 Return On Net Worth(%) Return On Capital Employed(%)

2009

2011 Average Days Collectible

2010

Days Inventory Held

10

15

20

Marico HUL GCPL ITC Industry Marico HUL GCPL ITC Industry Marico HUL GCPL ITC Industry

A decent turnover ratio has allowed the company to use its assets well enough, though a scope for improvement if compared to the Industry Leader is concerned. The share of imports in Consumption also proves its diverse resource utilisation1

10 8 6 4 2 0

9 8 7 6 5 4 3 2 1 0

Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio

2011

2010

2009

Industry

PEER COMPARISON
Even with a above normal Debt for the company as compared to the Industry, the company is in a comfortable position to cover all its debt. Even though industry leader HUL stands way out.
0 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00 Marico Marico Marico GCPL GCPL GCPL ITC ITC HUL HUL Industry Industry HUL ITC Industry 5 10 15 20 3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00 1.00 0.80 0.60 0.40 0.20 0.00 Marico Marico

Marico

GCPL

GCPL

GCPL GCPL

ITC

ITC

HUL

HUL

Industry

Industry

HUL

ITC ITC

2011

2010

2009 Debt Equity Ratio

Long Term Debt Equity Ratio

2.50 2.00 1.50 1.00

2011 Interest Cover

2010

2009

Financial Charges Coverage Ratio

A quick ratio of 1:1 enables the organisation to be in a position to pay off its short term liabilities easily and a better than industry average shows the resilience of the firm. Also, less use of debt by the company in its expansionary phase, enables it to leverage itself at a time it is looking to increase its scope of business and enlarge its product offerings
10

0.50 0.00 Marico Marico Marico ITC GCPL GCPL HUL HUL ITC Industry Industry HUL Industry

2011 Current Ratio

2010

2009 Quick Ratio

Industry

SELLING RATIONALES
I. OVERVALUED FMCG SCRIPTS
FMCG is quantity driven sector; absolute profit made is relatively small but cumulative profit can be substantial FMCG is a defensive investment so more investor invest when market condition are uncertain Generally FMCG sector is an under performer vis--vis Nifty Index but since global crisis FMCG has outperformed Nifty Index Uncertain Investment climate has caused investor to invest in defensive FMCG sector causing FMCG shares to be overvalued vis--vis other general economy Price Multiple of BSE FMCG Index is 35 times and that of Sensex is 17.6* (THE HINDU BUSINESS LINE) BECAUSE FMCG SECTOR IS OVERVALUED SO IT IS IDEAL TIME TO EXIT SHAREHOLDING DUE TO POTENTIAL BENEFIT DUE TO OVERVALUATION
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400 300 200 100 0

Before Global Crisis Comparative Performance Taking Jan 31, 2004 as Base

CNX FMCG

01-Jan-06

01-Jan-04

01-Jan-05

01-Jan-07

Nifty

01-Jul-04

01-Jul-05

01-Jul-06

Performance of Indexes since crisis Taking Jan 31, 2008 as Base

250

200 150
100

01-Jul-07

50 0

CNX FMCG

Nifty

01-Mar-09

01-Aug-08

01-May-10

01-Dec-10

01-Feb-12

01-Oct-09

01-Jan-08

01-Jul-11

SELLING RATIONALES
II. OVER DEPENDENCE ON PARACHUTE AND SAFFOLA BRAND AND VOLATILITY IN PRICES OF AGRICULTURAL INPUTS
Maricos top line and bottom line is over dependent on its flagship brands, Parachute and Saffola (contributes 45% to revenue) Company trying to alter its product revenue mix by launching new products every year in health wellness and other FMCG segments but has not been able to significantly alter the position Prices of Maricos key raw materialscopra, safflower oil, and, rice bran oilare dependent on climatic conditions, international prices, and the domestic demand-supply situation Volatility in prices of these inputs can significantly effect on profitability margins of Marico
Over dependence on Flagship Brands (% Revenue) 45%
55%

Parachute and Saffola

Others

Increase in Price of Copra decreases gross margins significantly

8000 6000 4000 2000 0 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

Jan-11

Sep-10

Nov-10

Sep-11

May-11

May-10

Nov-11

Jan-12

Average Copra Prices (INR/Qtl)

Gross Margins

COMPANIES WITH LOW COMPETITIVE AND ENVIRONMENTAL PRESSURES AND BROAD PRODUCT PORTFOLIOS WILL BE ABLE TO BETTER WITHSTAND ANY SLOWDOWN IN A PARTICULAR SEGMENT
12

May-12

Mar-11

Jul-11

Jul-10

Mar-12

Mar-10

SELLING RATIONALES
III. FUNDS REQUIRED FOR EXPANSION
DIVERSIFICATION: In order to diversify and reduce overdependence on Flagship Brands, Marico has been trying to add products to its product portfolio ACQUISITION: Recently acquired Personal Care Business of Paras Pharmaceuticals from Reckitt Benckiser; deal was funded by stake sell of 4.56% to Indivest Pte Ltd and Baring India Private Equity INTENTION: As per Industry Sources, wants additional capital for inorganic and organic growth but Investment Environment in India is NOT conducive for getting the best deals from PE or FPO

IV. MARICO SHARE ARE FAIRLY PRICED

GROWTH RATE: Marico has been growing at the rate of 22% yoy driven by strong volume growth SHARE PRICE: Marico has been trading at its all time highest price range of 190-198 CONTROLLING PREMIUM: If sold currently Marico can commend good controlling premium in case Majority Stake is sold

*Motilal Oswal

SALE OF CONTROLLING STAKE IS VIABLE : FMCG SCRIPTS ARE OVERVALUED + DIVERSIFICATION IS NECESSARY + FUNDING IS REQUIRED + MARICO CAN FETCH PREMIUM PRICE CURRENTLY
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POTENTIAL BIDDERS
The following companies have been identified as the potential buyers for Marico based on their current vision and strategy, synergies and financial standing overview

ITC LIMITED
Strategy:
Create multiple drivers of growth by developing a portfolio of world class businesses that best matches organisational capability with opportunities in domestic and export markets

GODREJ CONSUMER PRODUCTS LTD.

Strategy:
To deliver superior value for our stakeholders by providing leading quality, affordable home and personal care products that enhance the quality of life of consumers in high growth emerging markets

Synergies:
Maricos

Synergies:
products complement ITCs Personal Care

portfolio Their combined distribution channels will enable pan India reach On talking to the head of ITCs personal care division, we came to know of companys aspiration to extend its portfolio in this segment

Godrej has a vast range of hair care and personal wash products EXCEPT hair oil. Therefore, Maricos line of products will compete the set of hair care line of GCPL In addition, Paras products acquired by Marico will enable GCPL to strengthen their personal care segment like deodorants

Financial Standing:

Financial Standing:
Cash

and Cash equivalent as on 31-03-2012: Approx Rs. 3000 Crores Debt-Equity ratio of 0.01. Ample scope of raising funds through debt instruments for carrying out buy out

Though the cash and cash equivalents of GCPL were only Rs. 640 crores as at 31st March, 2012; the company has low debt equity ratio of 0.18. This presents ample opportunity for GCPL to raise debt for buying Marico

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POTENTIAL BIDDERS
WALMART
Strategy:
a.Offering a broad assortment with even lower prices b.Meeting local needs and leveraging global resources

RELIANCE INDUSTRIES LIMITED

Strategy: Reliance pursues the strategy ofa.Leadership in key businesses b.Backward vertical integration with presence across value

Synergies:

Association with Marico will enable Walmart to enter the Indian retail space indirectly. Hence Walmart will be surely interested in buying the firm Maricos strong distribution channel will present a win-win opportunity for both the players Though the cash and cash equivalents of GCPL were only USD 6551 Million as at 31st January, 2012. This presents ample opportunity for Walmart to buy Marico

chain c.Cash Flow Visibility and Strong growth momentum d.Stable performance

Synergies:

Financial Standing:

Marico complements RILs strategic vision as Marico is among the leaders in FMCG space, has strong growth momentum with high potential and has performed stably Maricos products will complement Reliance Retail Format Cash and Cash equivalent as on 31-06-2012: Approx Rs. 70,732 Crores. This huge cash resource can be effectively utilized in buying out the high performance company Marico

Financial Standing:

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POTENTIAL BIDDERS
DABUR INDIA LTD
Strategy:
a.

Decision: The final buyer

ITC is the best option for Marico bidding due to the following reasons: a. Intention: The management wants to diversify b. Resources: ITC can offer good price for Marico since it has enough resources like cash and ability to raise debt c. Synergies: Maricos product line will exhibit great synergies with that of ITC

b.

Focus on growing core categories, reaching out to new geographies, within and outside India, and improve operational efficiencies by leveraging technology Provide our consumers with innovative products within easy reach
Daburs

Synergies:
personal care segment will derive synergies from Maricos product range especially Kaya Clinic and Parachute Oil and Cash equivalent as on 31-03-2012: Approx Rs. 262 Crores however, with a Debt-Equity ratio of 0.21Dabur can raise funds for buy out.

Financial Standing:
Cash

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ANNEXURES

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ANNEXURES

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