A C Choksi: Marico Limited

A C Choksi
Share Brokers Private Limited

A C Choksi Institutional Research research@acchoksi.com

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Company Overview :
Key Positives
Good business potential and opportunities
Indian Hotels Company Limited (IHCL) and its subsidiaries are collectively known as Taj Hotels Resorts and Palaces and is recognised as one of Asia's largest
and finest hotel company. Taj Hotels Resorts and Palaces have hotels in the locations across India with an additional international hotels also in the Maldives,
Malaysia, Australia, UK, USA, Bhutan, Sri Lanka, Africa and the Middle East. Spanning the length and breadth of the country, gracing important industrial
towns and cities, beaches, hill stations, historical and pilgrim centres and wildlife destinations, each Taj hotel offers the luxury of service, the best of Indian
hospitality, vantage locations, modern amenities and business facilities.IHCL operates in the luxury, premium, mid-market and value segments of the market.
India is one of the fastest growing travel and tourism market.In India, from 2004 -09 the travel and tourism demand has increased at a compound growth rate
(CAGR) of 16.4% and is estimated to reach U.S.$ 91.7 billion in 2009.It is further expected to reach US$266.1 billion by 2019.(Source:World Travel and Tourism
Council)
The hotel industry, on the whole, is seeing increased occupancy levels and revenue per available room in all major cities. With the growth in a economy and
increase in the disposable incomes, people are opting for leisure travel which is driving domestic tourism and in turn demand for hotels In addition, competition
in airfares and better infrastructure leading to improving connectivity between various destinations are also leading to increase in travel and in turn demand for
the hotels.
On account of higher earnings and improved business confidence; Corporate meetings, incentive, conventions and entertainment (MICE) segment also offer a
huge opportunity to the Indian hospitality industry. Further, with increase in business opportunities in smaller cities there is simultaneous increase in the
business travel and for budget hotels in these cities.
Government as well as states are taking initiatives for promoting tourism.These initiatives are contributing substantially in increasing the travel and tourism
demand and in turn beneficial for the hotel industry.
Because of various factors like ancient history and diverse culture, over the years India has emerged as a popular tourist destination. Also as we have national
parks and wildlife sanctuaries spread across the country, adventure and wildlife tourism`s popularity is increasing. In 2010, there has been a rise in the number
of foreigners visiting the country. According to Tourism ministry, foreign tourist arrival grew 9.9% between January and October this year from the same period
a year ago. Foreign tourist arrivals could pick up further in 2011 also because of events like the cricket world cup in February, possible IPL cricket tournament
and Formula One event in October.
Thus as seen, IHCL being one of the leading hotel in the country has various favorable growth opportunities.

Source: A C Choksi Research
Source: CEA, A C Choksi Research

Nurturing Wealth

Initiation Report
Sector: FMCG
Marico Limited
Well oiled to stride high !!!
Swati Gupta
Senior Analyst
Email :
Tel: 91-22-3021 9046
Mehul Jhaveri - Technical Analyst
swati@acchoksi.com
Recommendation: BUY
Target Price: Rs. 158
Investment Summary :
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Lifestyle changes in India to scale up demand for Saffola and
Premium Hair Oils
Parachute-well oiled for a high growth stride
International Business Group (IBG) to witness rapid growth
India's economic growth has accelerated significantly over the past
two decades; well synchronized with robust pace of urbanization.
With rising urbanization and improving household disposable
income, consumers are gradually becoming health conscious. This
persistent shift for India over past two decades augurs well for
Marico's business model, which is increasingly gaining traction in
Health care and Hair care space via Saffola and Premium Hair oil
brands. The company is likely to witness a robust demand for both
the segments. In our view, Saffola will be a major growth driver for
Marico and its volume and value growth will register a CAGR of
17.5% and 24.5% respectively during FY2011-2014E. The value
added hair oils category is expected to register a steady growth of
28.3% CAGR during the period FY2011-2014E.
Marico is the market leader in the coconut oil (CNO) market in India
through its flagship brand Parachute. Marico is well-positioned to
become the key beneficiary of changing preferences of Indian
consumers as there exists a large headroom for growth with 40%
market share with unorganized players. Marico has well defined
growth strategy in place to expand in hair care segment 1) by
improving profitability in coconut oil segment, where it enjoys high
pricing power 2) to expand its hair care basket by launching new
product variants under its flagship brand Parachute. We believe
rising pricing power, better product portfolio and favorable
competition dynamics will drive growth momentum in the hair care
space.
IBG currently contributes approximately 23% of Marico's total
revenue and has been growing at a CAGR of approximately 36%
over the past 4 years. Going forward, we expect the IBG to grow at a
CAGR of 21.5% between 2011 and 2014 and by FY14 it is expected
to contribute 25 - 26% of the total revenue.

A C Choksi

A C Choksi Research Institutional research@acchoksi.com

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Nurturing Wealth

Research Report|FMCG
May 23, 2011
Recommendation: BUY
Target Price (Rs.) 158.0
Recommendation Price (Rs.) 135.0
Potential Return (%) 17%
BSE Sensex 17993

Stock Data
BSE Code 531642
NSE Code MARICO
Bloomberg MRCO IN
Reuters Code MRCO. BO
52-Week Range (Rs. ) 153/99. 8

Key Financials
Shares Outstanding (mn) 614. 4
Fa ce Value (Rs.) 1
Market Capita l (Rs. bn) 84. 2
Pa st 3 Yrs Sales Growth (%) 14. 5
Pa st 3 Yrs PAT Growth (%) 14. 6
Dividend Payout (%) 11%

Valuation:
We are initiating coverage on Marico for 12-18 month horizon, with a target price of Rs. 158
per share based on DCF Valuation method. Our DCF valuation is based on a WACC of
9.65% and perpetual growth rate of 5.0%.
The stock is currently, trading in the 18-22x two-year forward PE band. We believe that the
stock should sustain in this trading range on account of increasing awareness towards health
care, economic recovery and consumers preference to uptrade with increase in income levels
and urbanization. Further, Kayas turnaround and strong growth in International business
group will also give thrust to overall profitability and revenue growth. Our DCF-based target
price implies an earnings multiple of 21.6x FY13 earnings which is within the trading range.

A C Choksi


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May 23, 2011
FINANCIAL SUMMARY
Particulars (Rs. Mn) FY10 FY11 FY12E FY13E FY14E
Total Revenue 26, 790 31, 562 37, 383 44,317 52,450
EBITDA 3, 934 4, 377 5, 232 6,397 7,996
Post-Tax Income/(Loss) 2, 317 2, 864 3, 446 4,479 5,788
Earnings (Rs. ) 3.80 4. 66 5. 61 7. 29 9. 42
EPS Growth 22.7% 22. 6% 20. 3% 30. 0% 29. 2%
EBITDA Margin 14.7% 13. 9% 14. 0% 14. 4% 15. 2%
PE (x) 35. 5 29. 0 24. 1 18.5 14. 3
P/BV (x) 12. 7 9. 1 6. 8 5.1 3. 9
EV/EBITDA (x) 21. 9 20. 2 16. 5 13.0 9. 8
EV/Sales (x) 3. 2 2. 8 2. 3 1.9 1. 5
ROE 35% 31% 28% 28% 27%
ROCE 30% 22% 26% 30% 32%
Source: Company, A C Choksi Insti t ut ional Research

Two year forward PE-Band

Company Overview:
Business Description:
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?
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Marico is one of the leading Indian FMCG players in the beauty and wellness space
offering products and services in hair care, health care and skin care segments to
consumers in domestic and international markets. The company was incorporated on
13th October 1988, under the name Marico Foods Ltd, and it began commercial
operations in April 1990 when it took over the consumer products division of Bombay Oil
Industries. Marico acquired Parachute and Saffola brands from Bombay Oil Industries in
FY 2000. On April 25 2005 the company was renamed as Marico Limited and subsequently
got listed on the Bombay Stock Exchange in 1996. Based in Mumbai, the company has a
distribution network of over 3.3 mn outlets in India and overseas. Marico's operations are
primarily based in India with flourishing international presence primarily in Middle East,
SAARC countries, Egypt and South Africa. The manufacturing facilities of the company
are located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Baddi, Ponta Sahib and
Daman supported by subcontracting units.
The company's product portfolio comprises of well known brands such as Parachute,
Saffola, Hair & Care, Nihar, Shanti Amla, Mediker and Revive. Apart from the robust
growth led by introduction of new products under flagship brands, Marico pursued the
inorganic route aggressively to accelerate growth and capture market share. The company
has strengthened its product portfolio through acquisitions in domestic and international
markets.
Marico's business structure is segregated into three Strategic Business Units (SBU's):
Consumer Products Business (Domestic) Includes coconut oil, hair oil, edible oil, hair
care products, fabric care products and processed foods.
Consumer Products Business (International) Includes coconut oil, hair creams & gels,
hair care products and health care products.

Kaya Marico offers hair care and skin care services through a chain of clinics under
the brand name Kaya and Derma Rx.


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May 23, 2011
A C Choksi


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May 23, 2011
Business Structure
Source: Company, A C Choksi Institutional Research
?Consumer Products Business (Domestic):
Coconut Oil: Marico's coconut oil basket primarily comprises of Parachute, Oil of
Malabar and Nihar with an indicative market share by volume of approximately 52.6% as
on March 2011. Marico markets coconut oil mainly through its flagship brand, Parachute
which is a market leader in the industry with an approximate volume market share of
45.8% as on March 2011. Marico acquired Nihar from Hindustan UniLever Limited
(HUL) in February 2006 which has a strong equity in the eastern region with market share
of 6.0%.
Hair Oil: Marico's hair oil portfolio comprises of Parachute Jasmine, Nihar Naturals,
Hair & Care, Parachute Advansed and Shanti Amla with an indicative market share of 23%
in FY11. Parachute Jasmine and Hair & Care are light, fragrant and non sticky hair oils
which target a specific consumer group in the 18-24 year age bracket. Parachute Advansed
is a combination of coconut oil and other essential oils, targeted at young females and is
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priced higher than company's flagship Parachute coconut oil brand. Shanti Amla is the
second-largest brand in India in the amla category competing with the likes of Dabur Amla
Oil.
Edible Oil: Marico offers refined edible oil in the premium segment through its Saffola
brand. Saffola is Marico's flagship product which is positioned on the good for heart
platform and enjoys a strong brand loyalty. Leveraging on the success of the Saffola brand,
the company launched three blends Saffola Tasty Blend (corn oil and safflower oil),
Saffola Gold (80% rice bran oil & 20% safflower oil) and Saffola Active (rice bran and soya
oil). As Saffola is promoted on the heart health platform it enjoys premium pricing over
the other edible oil brands.
Functional foods under Saffola brand: With evolving tastes and preferences of
customers, Marico exploited available opportunities by prototyping products on its
existing flagship brands. The company launched a number of health friendly products
under the Saffola brand. The company has expanded the Saffola franchise by launching
Saffola Oats (prototyped in Maharashtra). During Q4FY10, Saffola Arise was launched
across key Saffola markets. It is a low Glycomic-Index (GI) rice that helps in weight
management.
Other brands: Marico is present in hair cream and hair gel market through Parachute
Advansed hair creams and hair gels with a market share of approximately 27% at the end of
March 2011. The company dominates the anti-lice treatment product market in India
through its brand Mediker which has a market share of approximately 96%. Revive is a
liquid fabric whitener for washing clothes and the company has a market share of
approximately 80% in this category.
May 23, 2011
A C Choksi
Domestic Business Brands
Parachute, Oil Of Malabar, Nihar Coconut Oil 53
Hair Oil (Hair & Care, Parachute
Jasmine, Parachute Advansed,
Hair Oils 23
Shanti Amla, Nihar)
Saffola Super Premium Refined
Safflower oil
53
Mediker Anti-lice Treatment 96
Revive Instant fabric starch 80
Source: Company
Market share
range %
Category

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?Consumer Products Business (International):
Marico has flourishing international presence in Middle East, Bangladesh, Egypt, South
Africa, Malaysia and Vietnam. Over the past four years, the international business revenue
has increased at a CAGR of 36% while the contribution to sales has increased from 13% in
FY 2007 to 23% in FY 2011. Parachute is the largest selling coconut oil brand in
Bangladesh and Marico has successfully doubled its market share in eight years from 36%
in FY 2003 to approximately 80% in FY 2011. The company has a strong distribution
network in Bangladesh with approximately 300,000 outlets. Leveraging upon the extensive
distribution network created by Parachute, the company introduced an Egyptian brand
Hair Code hair dye in Bangladesh. Hair Code has achieved about 29% value market share
thus establishing itself as a strong number 2 player. In addition to this, Marico had also
launched Saffola oil in Bangladesh during FY 2011 which is gaining traction in the market.
Marico operates in the Middle East through its subsidiaries, Marico Middle East FZE and
Kaya Skin Care FZE and its product portfolio comprises of Parachute coconut oil and
Parachute hair creams and gels. Marico entered the South African market in FY 2008
through the acquisition of Enaleni's consumer brands. The company commands a market
share of approximately 60% in the hair care category in Egypt through its Fiance and Hair
Code brands.
?Cigarette business: Stable and Sure
?Revival in FTA & capacity expansion will boost Hotels business
?Other FMCG: Consistent efforts will become profitable in FY13
?Paper and Paperboards: On a high stride ride
?Agri Business: Improving Margins
?Strong defensive player
?Valuation
Tobacco industry has received adverse tax shocks a number of times during this decade, yet ITC's earnings growth have remained quite stable as ITC
has managed to pass on tax hikes. This year, union budget increased excise duty exorbitantly. As a result, we expect volumes to decline by 2% in FY11.
However, net realizations of the company will grow and will result into margin expansion. After such a severe excise hike, we expect that further
increases will be moderate over the next couple of years. Hence, we expect volumes to grow by 4% and 6% in FY12 and FY13 respectively after
factoring in 5% hike in excise duty each year.
Foreign tourist arrival (FTA) has started showing signs of revival as FTA posted 15% y-o-y growth in Nov'10. As economic recovery is on the anvil,
aggressive capacity expansion plans of ITC will help the company to tap the growing opportunity in hotels industry without stressing its balance sheet
with financial leverage, which is common in this capital intensive industry.
Other FMCG business has been a loss making segment as ITC expanded its portfolio and invested aggressively on brand positioning over the years.
However, we believe losses have peaked in FY09 and started shrinking from there on and will turn into profits by Fy13.
We expect ITC's paper and paper board business to register strong growth in revenues and margins, going forward. Revenue growth will be driven by
capacity expansion, strong demand from external as well as internal consumption and rising prices of paper. On the other hand, backward integration
into pulp manufacturing will insulate ITC from the high international prices of pulp and would result into margins improvement on buoyant paper
prices.
The company is focusing towards improvement in product mix and is likely to trade into high margin commodities which will result into margin
expansion in the segment.
ITC is a strong defensive player focused on domestic theme. In a scenario of uncertain global economies, rising interest rates and high commodity
prices, ITC is wellhedged due to its diversified business model. Currently, FMCG companies are facing margin pressure due to high input prices.
However, ITC has an edge over its competitors in FMCG space because of its supply chain efficiency. Along with that, an increase in commodity prices
improves profitability of its Agri business division which partly negate the impact of hardening commodity prices for the company as a whole.
We value ITC on SOTP basis due to diversity of its businesses. SOTP price target implies a 20x P/E multiple for the cigarette business. Our price target
implies an earnings multiple of 23.1x FY12E earnings.


Nurturing Wealth
Source : A C Choksi Research

Segment-wise Revenue Contribution in FY10 Segment-wise EBIT Contribution in FY10

December 24, 2010
May 23, 2011
?Kaya:
Marico offers hair care and skin care services through a chain of clinics under the brand
name Kaya. At present, there are a total of 103 clinics with 81 situated in India, 16 in the
Middle East, 2 in Bangladesh in addition to the 4 clinics and medi-spas in Singapore and
Malaysia through Derma Rx.
A C Choksi
International Category Products
Bangladesh Coconut Oil,Edible oil &
Hair care
Parachute oil, Saffola, Hair
Code
South Africa Hair care and Health care Caivil, Black Chic, Hercules,
Ingwe
Egypt Hair care Fiancee and Hair Code
Middle East Skin Care Parachute cream & Gels
Malaysia Hair care Code 10
Vietnam Personal care, Home Care
& Foods
X-Men, L'Ovita, Thuan Phat
Food
Source: Company

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?Health and wellness market offers huge growth potential in India
1) India: moving towards a double-digit growth trajectory
India's economic growth has accelerated significantly over the past two decades. Spending
power of its citizens also increased as real average household disposable income has
broadly doubled since 1985. With rising incomes, household disposable consumption has
soared and new Indian middle class has emerged. Demand for FMCG has a positive
correlation with the rising income levels. As growing middle class continues to see its
income level rise, it is likely to up-trade from popular category products to premium
category products. Further, stimulus packages by Government of India and robust
agricultural production led to an increase in rural income, which in turn resulted into
strategic shift in consumer preference from unbranded to branded products.
Prior to global economic slowdown, India reported growth of over 9% for 3
consecutive years while during economic slowdown it moderated to 6.7% - still high
compared to other world economies. Indian economy is on the recovery path and
reported a growth rate of 8.6% in FY 2011, which is expected to touch 9% levels in
FY 2012 and 10% in FY 2015.
?Valuation
prices.


Nurturing Wealth


December 24, 2010
Source: RBI & Economic Research
May 23, 2011
Investment Thesis
GDP Growth
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2)Urbanization to contribute in future growth of the economy
Urbanization is a key indicator of economic development of a country. With
economic expansion, its towns and cities expand in size and volume and the
contribution of the urban sector to the national economy increases. Urban India is
undergoing a deep transition phase in terms of physical form, demographic profile
and socio-economic diversity. The rate of urban growth in the country is very high as
compared to developed countries, and the large cities are becoming larger mostly due
to continuous migration of population to these cities.
Urban population of India is expected to reach 433mn by 2021, while the total
population may reach 1340mn (Source: Registrar General, Government of India).
Thus, the level of urbanization in the country in the year 2021 is expected to be about
32%.
?Valuation
prices.


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December 24, 2010
May 23, 2011
Urbanization
Source : Registrar General, Government of India
By 2021, the contribution of urban sector to GDP will grow to 75% from current
62% levels. During last decade, aggregate urban consumption has grown by 6.2%
outpacing GDP growth. Going forward, urban consumption is expected to grow at a
CAGR of 9.4% over the next 20 years (Source: Mckinsey). Thus, average annual
spending per urban Indian household will more than triple in 2025.
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Source: Government of India

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December 24, 2010
May 23, 2011

Aggregate Urban Consumption Contribution of Urban sector to GDP
Source: Planning Commission
Source: Mckinsey
3)Rising income levels and increasing discretionary spends reflects improving
lifestyle
Since 1996, India's consumption pattern saw a major shift from food consumption
to non-food consumption, which includes health, hospitality and educational
spending. This scenario was the same with both rural and urban India's population.
Non food consumption for the cities, in particular is contributing much more than
food consumption to the total expenditure. Rising income levels will bring more and
more urban population aware towards health and wellness.

Declining trend in food related consumption indicating lifestyle changes
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Health Care
?Saffola to remain on a high growth path
?Increasing Cardiovascular Cases in India will make people shift towards
healthy oils
Saffola is a forty year-old brand and one of the major revenue drivers for Marico. The
brand is positioned in a niche category of 'good for Heart' platform to tap the health
conscious Indian consumers and therefore offers higher realizations than other edible
oils. As Marico targets health conscious consumers in the country, increasing
awareness over cardiac problems, coupled with rising incomes, will lead to strong
growth in Saffola, going forward. The consistent launch of innovative edible oil
variants and functional foods under the brand is expected to further support growth
under the Saffola franchise.
Starting from a level of about 380 lakh cases in the year 2005, there may be as many as
641 lakh cases of cardiovascular disease (CVD) in 2015. The rates of prevalence of
CVD in rural populations will be lower than in urban populations, but will continue to
increase, reaching roughly 13.5% of the rural population in the age group of 60-69
years by 2015. The prevalence rates among younger adults and women (in the age group
of 40 years and above) are also likely to increase. With rising aspirations and increasing
stress levels, India will see a major number of CVD cases in the bracket of working age
population. It is estimated that 82% of total CVD cases will be witnessed in the age
bracket of 20-59. We believe the steady rise in the awareness towards healthy lifestyle
will attract more and more consumers toward Saffola brand.

Nurturing Wealth
December 24, 2010
Business Overview

May 23, 2011
A C Choksi

Burden of cardiovascular diseases in India
Source : NHFCA
Marico emerges
as a key
beneficiary of
urbanization and
rising income
levels in rural
and middle class
households due
to its niche
positioning in
Health care and
Hair Care space



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?Presence across price points expands market reach:
Leveraging on the success of the Saffola brand, Marico launched 3 blends; Saffola
Tasty Blend (corn oil & safflower oil), Saffola Gold (80% rice bran oil and 20%
safflower) and Saffola Active (rice bran & soya oil). Saffola has grown at a healthy rate
over the past several years, driven by changing consumer preference for branded oils.
These variants fill the gap between premium category Saffola oil and regular edible oils.
Hence, it taps the customers who wish to choose healthy refined oil but were not able to
do so because of high premium of Saffola oil over regular edible oils. This expands
market reach of the Saffola brand to middle class and aspiring customers. This strategy
to expand product basket across various price points entail dual benefit for the
company, as rising income levels make customers to uptrade to high-margin premium
product. On the other hand, during rising inflation when consumers tend to
downtrade, offerings across various price points helps Marico to retain market share.

Nurturing Wealth
December 24, 2010
Business Overview

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December 24, 2010
Business Overview

May 23, 2011
A C Choksi
Prices of Saffola's various brands



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?Brand Extension: Entry in high growth, nascent categories with a niche of
health positioning
?Saffola's success reflects brand power of Marico:
?Saffolas Outlook:
With evolving tastes and consumer preferences, Marico has exploited available
opportunities by prototyping products using its existing flagship brands. The company
launched a number of health conscious products under the Saffola brand. The
company has expanded the Saffola franchise by launching Saffola Oats (prototyped in
Maharashtra). The Oats market in India is approximately Rs 1200-1400mn and is
growing fast at a rate of approximately 40%. While the category has seen the recent
entry of a few players, the nascent market and healthy trend provides room for all
players to participate in this category growth. Saffola will also play a role in expanding
the market. During Q4FY10, Saffola Arise was launched across key Saffola markets.
The performance so far has been encouraging in the West & South India markets where
short grain rice is common. During Q4FY11 two more variants in Basmati and long
grain rice were introduced to strengthen the position in the North where the longer
grain is preferred. The packaged rice market in India is approximately Rs 4000mn and is
growing at over 20%. With its innovative health positioning Saffola is likely to create a
sizable franchise for itself over the next two to three years.
Saffola consistently maintained double digit volume growth since FY 2004 on account
of huge branding and creating a different category of consumer which is urban and
focused towards the heart related issues such as cholesterol. Though caters to a very
niche but high income group of population, Saffola maintained its market share over
15%. The brand witnessed major competition from Agro Tech Food's Sundrop brand
which was also categorized in the same niche. During FY 2005-10, Saffola's volume
registered a CAGR of 15% while its revenues reported a CAGR of 18%. Going
forward, we expect that strong demographics of India and Marico's increasing focus on
Saffola will help to improve its contribution to business. In our view, Saffola will be a
major growth driver for Marico and its volume and value growth will register a CAGR
of 17.5% and 24.5% respectively during FY 2011-14.
During FY 2011, Rice bran prices registered a significant increase of approximately
21% whereas safflower prices remained flat. To factor in the impact of the same the
company had taken a blended price increase of approximately 12% during the year.
Going forward, we expect an increase in safflower prices as during the current crop
?Valuation
prices.


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December 24, 2010

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December 24, 2010
Business Overview
May 23, 2011
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season for safflower, production is expected to decline by approximately 9.8% y-o-y
(Source: COOIT). We have factored in a price increase of 17% in safflower prices during
FY 2012. On the other hand, rice bran oil production is expected to increase by
approximately 6.25% y-o-y during the current crop season. Thus, we have factored in a
moderate increase of 8% in rice bran oil prices during FY 2012. Hence, we believe that
blended realizations of the company will increase by approximately 11% during FY
2012. We expect that Saffola will register a volume growth of 17% during the year.
?Valuation
prices.

Source: A C Choksi Institutional Research

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December 24, 2010

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December 24, 2010
Business Overview
May 23, 2011
A C Choksi

Saffola's Volume growth
Saffola's Value growth
Safflower Seed
Particulars (in Lakh Tonnes)
2010-11 Season 2009-10 Season
State
-Ma hara shtra 0. 85 0. 9
-Karnataka 0.4 0. 4
-Andhra Pradesh 0.1 0. 1
-Others 0. 05 0. 1
Total 1.4 1.5
Retained for sowing & Direct
Consumption 0.1 0. 1
Marketable surplus for crushing 1.3 1.4
Source: COOIT
Trade Estimate



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?Valuation
prices.


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December 24, 2010

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December 24, 2010
Business Overview
Saffola's Gross blended realization Growth
May 23, 2011
Raw Material Prices

Kardi Oil Rice Bran Oil
Source : A C Choksi Institutional Research
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?Supply Side Hedge:
?Skewed urbanization in India became favorable for Marico:
Safflower cultivation in India is continuously declining over the last 10 years, and has
declined by 64% since 1991. Production has also declined by 41% during the same
period. Major reasons for decline in area and production of safflower are higher
remuneration from competing crops such as sorghum and gram and low price
realization for the farmers as compared to other oilseed crops.
Marico is the major procurer of safflower in India. However, Marico's continuous
thrust on product improvisation had reduced the supply side constraint as the company
had chosen to offer blended oils rather than pure safflower oils. Incorporation of rice
bran oil in its edible oil portfolio provides multiple benefits to the company, as 1) with
Cholesterol lowering property rice bran oil has the ideal SFA/MUFA/PUFA ratio
which is the closest to WHO recommendation as compared to other edible oils; hence it
gels well with the Marico's Healthy Edible Oil strategy; 2) rice
bran oil production in India is increasing consistently, thus it hedges Marico against
supply side hiccups; 3) price of rice bran oil is low as compared to safflower oil prices;
this facilitates Marico to offer healthy oils at lower price points while maintaining its
margins.
Several states in India are at a low level of urbanization, in that they have not attained
even the 1951 national level of urbanization. These are Assam, Bihar, Himachal
Pradesh, and Orissa. Uttar Pradesh and Chhattisgarh are still to cross the 1971 national
level of urbanization (Source: Registrar General, Government of India). Marico
generates approximately 60% of its revenue from South and West regions, which are
developing fast and with strong distribution network in place it provides an
opportunity to expand its Health care brand in these regions rapidly.

?Valuation
prices.


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December 24, 2010

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December 24, 2010
Business Overview
May 23, 2011
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Hair Care
?Hair Oil Industry; growing at par with FMCG Industry Average:
?Parachute-well oiled for a high growth stride:
Hair care products contribute approximately 8% of the total FMCG market (Rs
1611bn) in India (Source: A C Nielsen). Hair care industry is growing at par with overall
industry average of approximately 13-14%. Shampoo and hair oils, including coconut
oils, continue to be the key components of this segment. Hair oils category constitute
more than 55% of the overall hair care industry in India. Hair oil category witnessed a
volume growth of 17% CAGR from FY 2007 to FY 2010 whereas it witnessed value
growth of 21% CAGR over the same period. This growth is primarily attributed to the
improvement in distribution network and supply chain efficiency.
Marico is the market leader in the coconut oil (CNO) market in India through its
flagship brand Parachute. Market size of branded coconut oil in India is
approximately Rs 19bn. In light of growing urbanization and increasing affordability,
customers are becoming more brand conscious. Marico is well-positioned to become
the key beneficiary of changing preferences of Indian consumers as there exists a large
headroom for growth with 40% market share of total CNO market with unorganized
players. To exploit this untapped market, Marico has launched packs at low price points
in order to facilitate the conversion of loose oil users of coconut oil to Parachute.
During, rising input cost scenario the company had restrained from increasing prices at
lower price points. The company has clear-cut growth strategy in place to expand in hair
care segment 1) expanding profitability in coconut oil segment, where it enjoys high
pricing power; 2) to expand its hair care basket by launching new product variants under
its flagship brand Parachute (only in the product categories where it can achieve
dominant market share). Thus, the company has strategically decided not to focus on
niche markets like shampoo and hair-colorant due to high competitive intensity in the
categories. We believe pricing power, better product portfolio and favorable
competition dynamics will drive growth momentum in the hair care space.
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prices.


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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi



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?Opportunity in South India:
From the following chart we can depict that South India is still not a huge market for
light hair oils and is a major consumer of coconut oil. Thus, Marico, which has a strong
distribution network in South India, with its Parachute brand in pure CNO category
and coconut oil based variants has an edge over its competitors in the region.
?Valuation
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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
?With rising rural penetration Marico taps unbranded CNO market:
Rural sales comprised about 27% of the company's Indian FMCG sales during FY 2011
as compared to 25% in FY 2010. Marico has taken initiatives to drive greater rural
penetration over the last two years or so. It has endeavored to reach a larger number of
retail outlets in the rural market directly through its distributor sales force rather than
depending on wholesalers to service these outlets. This has improved the quality of the
sales call and provides the opportunity to sell-in a wider range of products. In recent
times, the sales reach has increased largely on the back of penetrative pricing in Shanti
Amla and lower price point packs in Parachute. Going forward, we expect that Marico's
traction in rural market will improve, driven by: 1) better distribution reach; 2)
availability of branded products at low price points; and 3) strong growth in rural
income led by continued stimulus to the rural economy from higher National Rural
Employment Guarantee Act allocation.
May 23, 2011
A C Choksi
Region-wise break up of Light hair oil Industry in India
Source: A C Nielsen



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?CNO Category's Outlook:
During FY 2011, Copra prices registered a significant increase of approximately 45%
owing to decline in copra production in India (due to unseasonal rains in Tamil Nadu
and Kerala) and increase in copra exports (India's coconut exports have increased by
approximately 30% in FY 2011, triggered by the export ban on shipments of the
produce of Sri Lanka). To factor in the impact of the same the company had taken a
price increase of approximately 32% during the year. Out of these 32% the company
had taken price increase of approximately 8% during Jan 2011, the impact of which will
be visible in FY 2012. If company wants to maintain its margins in CNO segment then
for every 2% increase in copra the company has to increase CNO prices by 1%. During
the current crop season, copra production is likely to decline by approximately 2% y-o-
y (Source: COOIT) whereas as per our channel checks copra exports are expected to
remain robust. Thus, we anticipate that copra prices will increase by approximately
20% during FY 2012. As company had already taken price increase of 8% during Jan
2011, the impact of which will be visible in FY 2012, we have factored in an increase of
3% in blended realizations during FY 2012. We believe that, minimal price increase
during FY 2012, will lead to volume growth of 8% during the year. This will result into a
value growth of approximately 11% during FY 2012.
?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi

Volume Growth in CNO category Blended Realizations Growth in CNO
Source : A C Choksi Institutional Research



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?Valuation
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Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi
Copra Prices
?Hair oils; Expanding franchise:
Marico's hair oil portfolio has indicative market share of 23% with Dabur leading the
space. Major competitors for Marico in this segment are Keo Karpin, Dabur Amla,
Vatika hair oil and Bajaj Almond drops. The company continuously engages in
prototyping and introducing various product variants as per the requirement of the
customers. For example, the company has started promoting sticky coconut oil as pre-
wash oil and non-sticky oils as post-wash. It has also launched Parachute Therapy
which is specially designed to control hair fall. Further, the company is prototyping
coconut based cooling oil in Andhra Pradesh which is gaining traction in the region.
Hence, with continuous value addition Marico is becoming one-stop-solution-
provider for the customers and hence has an edge over its competitors. Light hair oil
and Amla Hair oil is an urban dominated segment due to its comparatively high cost.
With well placed distribution network Marico is all set to tap the benefit of rapid
urbanization in India in Hair care category. The value added hair oils category
(including Nihar) contributed approximately 17% to total revenues of Marico in FY
2011 and is expected to register a steady growth of 28.3% CAGR during the period FY
2011-2014E.



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?Divestment of Sweekar Brand to improve profitability:
?Kaya's turnaround; Acquisition of Derma Rx to improve profitability:
In March 2011, Marico divested its refined sunflower oil brand Sweekar to Cargill
India private Limited (Cargill) for a consideration of Rs 500mn. Sweekar was
contributing approximately 5.1% of total sales of the company. Sweekar's low pricing
power and single-digit operating margin were a drag on Marico's overall profitability.
Hence, this divestment was in line with the company's strategy of focusing on Saffola as
its wellness platform in the refined edible oils and functional foods space. We believe,
this divestment will lead to marginal improvement in profitability of the company.
However, this improvement in margins will be offset by increase in ad-spends during
FY 2012. During FY 2011, Marico had slashed its ad-spends significantly, in order to
retain its operating margins. However, as this is not a common phenomenon, we believe
that the company will restore its regular ad-spend ratio during FY 2012 to give a thrust
to its volume growth. Thus, impact of divestment of low-margin business will be
visible from FY 2013.
Marico ventured into skin care and wellness business in 2002 through its wholly-owned
subsidiary Kaya Skin Care, which operated with 103 clinics at the end of FY 2011. Out
of 103 clinics, 81 are located in India, 16 in the Middle East, 2 in Bangladesh in addition
to the 4 clinics and medispas in Singapore and Malaysia through Derma Rx.
Although Kaya is based on a unique business model, offering a range of skin care
services and products, it grew at lower than expected rate, primarily due to low client
?Valuation
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Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi

Volume growth in Hair Oil category Value growth in Hair Oil category



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retention, introduction of service tax, higher attrition of the skin practitioners and
curtailment on discretionary spending by customers during an economic slowdown.
Marico is taking various steps for Kaya's turn around:
Marico is focusing on various training sessions for its
skin practitioners which helped the company to reduce attrition rate from
approximately 50% to 35%.
Earlier, Kaya had
been perceived as a Solution for Skin Problems. However, this resulted into a
perception of that repeat visits are unnecessary and high-priced solutions also
proved detrimental to the growth. Thus to tackle this problem and to encourage
repeat visits, Kaya introduced services priced at Rs. 990 for a single session. These
were accompanied by easy upgradable offers.
Marico had acquired Singapore based Derma Rx in
May 2010. The company is banking upon the product portfolio of Derma Rx to
improve margins as Derma Rx is a highly profitable business. The company had
recently launched Derma Rx products in Kaya Skin Clinics in India and contribution
of product sales in overall Kaya revenues increased from 13% in FY 2010 to 17% in
Q4FY11. This is in line with the company's strategy to increase the share of
products to about 20%-22% in the next 2 years. The company will continue to
introduce more products in India in a phased manner. Derma Rx products are in the
process of being introduced in the Middle East too.
We believe the company will open four new clinics in FY
2012 and two clinics in FY 2013 in the Middle East region.
During FY 2011, Kaya's revenues (excluding of Derma Rx) increased 7% y-o-y to Rs
1947mn. Derma Rx registered revenues of approximately Rs. 442.6mn since
acquisition. Going forward, we believe that the division will grow at a CAGR of
15.9% between 2011 and 2014.
Decline in Attrition rate:
Introduction of low-cost services requiring repeat visits:
Acquisition of Derma Rx will lead to reduction in losses and eventually
improve Kaya's profitability:
International expansion:
?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi



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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi
?International Business Group (IBG) to witness rapid growth:
Bangladesh:
The IBG currently contributes approximately 23% of the total revenue and has been
growing at a CAGR of approximately 36% over the past 4 years. Going forward, we
expect the IBG to grow at CAGR of 21.5% between 2011 and 2014 and by FY14 it is
expected to contribute 25 - 26% of the total revenue.
During past couple of years, Marico had been very aggressive in terms of acquisitions.
The company has consciously followed the strategy to invest in the brands that have
high synergies with its existing product portfolio. These brands are well established and
enjoy considerable market share in the respective markets. With a reasonably large
product portfolio, the company is focusing on cross region marketing of the products
which will result into revenue growth of the product, optimum utilization of the
distribution network and better economies of scale which will lead to improvement in
IBG margins.
Revenue growth in Bangladesh will be supported by continuous
growth in parachute coconut oil by encouraging conversions from loose mustard
and coconut oil. Parachute has a volume market share of approximately 80% in
Bangladesh. The Company is leveraging on its extensive distribution network of
approximately 300,000 outlets by launching its International Brands in Bangladesh.
The company had launched Egyptian Hair Dye brand Hair Code in FY09 and
Domestic Flagship brand Saffola in FY 2011. Hair Code has achieved about 29%
value market share whereas Saffola refined edible oil is continuously gaining
traction. Thus, we believe that the company is well poised to grow at a steady pace in
Bangladesh driven by strong growth in new categories that complement the growth
of the flagship brand, Parachute.
Kaya's Revenue Structure
All figures in Rs mn, unless
specified
FY 2008 FY 2010 FY 2011 FY 2012E FY 2013E FY 2014E
Kaya:
Avera ge Footfall 30 32 33 35 37 40
Ticket Size (Rs) 1,500 1,600 1,650 1, 683 1, 717 1, 751
Working days in a yea r 350 350 350 350 350 350
No. of clinics 65 101 103 110 116 121
Total Revenues 1,820 1,947 2,775 3,261 3,792
-Service Revenues 1,017 1,583 1,589 2, 270 2, 612 2, 974
-Product Revenues 237 359 506 648 818
Derma Rx: 443 550 578 606
Source: Company data, AC Cho ksi Inst it uti onal Research



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Middle East and North Africa (MENA): During FY 2011, the company
registered almost flat growth in MENA region primarily due to the civil unrest
witnessed in the region during fourth quarter. Marico has created a manufacturing
hub for MENA in Egypt. The supply chain was adversely impacted for about 5-6
weeks. Although this has stabilized towards the end of the quarter, the company is
working on alternative sourcing options in order to de-risk its supply chain
operations. We remain cautious for the near term performance in the region. Thus,
we project a flat growth in the region during FY12. However, our outlook on the
long term trends in demand for personal care products in the region remains
positive. Rapid urbanization and the rise of middle-class African consumer are the
major growth drivers. In 1980, just 28% of Africans lived in cities while urbanization
increased to 40% by 2008. Thus, we believe that rapid urbanization and rising
disposable income will increase penetration and market size of the hair care and skin
care industry in the region.
?Valuation
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Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi
More than half of African households will have discretionary spending power by 2020
Source : Mckinsey



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South Africa:
Acquisition of Ingwe:
Malaysia:
Vietnam:
The South African business registered a growth of approximately
33% y-o-y during FY 2011, aided by the acquisition of Ingwe (discussed later). The
organic growth during the year was 24%. The company is present with its Caivil,
Black Chic (Hair care) and Hercules (Health care) brands in the region.
Marico had acquired OTC health care brand 'Ingwe' from
Guideline Trading CC of South Africa through its subsidiary Marico South Africa
Ltd (MSA). Ingwe is a leading healthcare brand in South Africa and has a range of
products catering to immunity booster. The products compliments to one of the
Marico's brand Hercules in South Africa. The Ingwe brand had a turnover of Rs
150mn in FY 2010. Further, Ingwe has a strong distribution channel which will help
the company to distribute its existing product range in South Africa. With this
acquisition, company has strengthened its health care presence in South Africa.
Going forward, the company will focus on increasing market share in key categories
in South Africa and eventually it will expand its footprint to other parts of sub-
Saharan Africa. Thus, revenues from South Africa are expected to grow 35.7% y-o-y
during FY 2012 driven by the growth in hair care and healthcare market in the region.
Marico entered the Malaysian hair cream and hair gels market through
the acquisition of Code 10 from Colgate Palmolive in January 2010. The hair styling
market in Malaysia is in excess of Rs 2000mn, with Code 10 being the third-largest
player in the segment with a market share of 10%. The company had finished
integration exercise of distribution and manufacturing transition during FY 2011.
Going forward, we believe that the company will register a revenue growth at CAGR
of 22.6% between FY 2011 and FY 2014, in Malaysia.
Marico increased its presence in the South East Asian market by taking up
85% equity in International Consumer Products Corporation (ICP), a leading hair-
care company in Vietnam. ICP focuses on hair care, with its brands X-Men (with a
35% market share in men's shampoos) and L'Ovite (focused on personal care).
Other products under the X-Men brand are conditioners and hair styling products.
20% of ICP's revenues come from food products under the Thuan Phat brand. The
acquisition was funded entirely through debt (ECBs at Libor+300bps). Going
forward, the Company is likely to focus on the process of integration. ICP is
expected to contribute approximately 2.6% to total revenues in FY 2012. However,
its contribution in margins is expected to remain modest owing to the conscious
strategy of higher investments in advertising during the year.
?Valuation
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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi



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?Overall portfolio to showcase steady growth:
We expect market share of Parachute to increase going forward driven by its strong
brand positioning and loose oil consumers switching to branded products. Further,
Saffola is also expected to have a larger share in edible oil market due to its well
established brand equity and continuous efforts to launch new variants at different
price levels to cater to a larger group of population. Restructuring of Kaya will further
boost its top-line. Hence, with a nice blend of geographical and product
diversification, Marico is well on track for a steady revenue growth momentum. Going
forward, we expect the CNO category to register an 11% CAGR growth in revenues
over FY 2011-14E supported by strong pricing power, increasing traction in rural
market and favorable competition dynamics. In addition, we expect the Saffola
brand to register a 24.5% CAGR growth in revenues over FY2011-14E supported by
changing preference for healthier foods and higher brand investments going forward.
Hair Oil category is expected to register a steady growth of 28.3% CAGR during the
period FY2011-2014E. In addition, IBG is expected to grow at a CAGR of 21.5%
between 2011 and 2014. Thus, overall revenues of the company are expected to grow at
3-year CAGR of 18.5% by FY 2014.
?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi
Financial Projections
Revenue & Revenue growth
Source: Company, AC Choksi Institutional Research



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?Diversified earnings stream :
From a commodity player, Marico has emerged as one of the leading player in hair care,
skin care and health care categories in India. As a result of Marico's diversification
strategy, the Coconut oil category's contribution to the company's revenue stream has
fallen from approximately 43% in FY 2005 to approximately 35% in FY 2010. Whereas
contribution of other categories and International business consistently increasing.
?Valuation
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Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
Revenue Mix
?EBITDA to register three year CAGR of 22.25%:
EBITDA of the company is expected to register CAGR of 22.25% over the period of
three years till FY 2014. EBITDA margin of the company is also expected to expand
owing to divestment of low-margin business, Kaya's turnaround and improving
product mix. However, during FY 2012 EBITDA margin is expected to remain flat as
we anticipate an increase in ad-spends during the year.
A C Choksi



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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
?Strong growth in net profit :
We expect net profit to grow at 26.4% 3-year CAGR by FY 2014. The growth in
earnings would be driven by strong revenue growth and margin expansion.
May 23, 2011
EBITDA & EBITDA Margin
PAT & PAT Margin
A C Choksi



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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
?Capex Breakdown :
The capex planned by the company pertains to the expansion of Kaya clinics,
maintenance capex, and capacity expansion of its hair care and edible oil plants. We
expect the company to open 18 new Kaya clinics till FY 2014 with a capex of Rs 12mn
for each clinic with maintenance capex of Rs 400mn per year. As the company is
expanding its reach in domestic as well as international markets, we expect capex of Rs
250mn-300mn p.a. for capacity expansion.
May 23, 2011
?Balance Sheet un-leveraging to improve return on capital employed :
Marico had been on an acquisition spree in the recent past, to expand in domestic as
well as international markets. Most of the capex for acquisition was funded through
borrowings leveraging the balance sheet of the company. Marico's borrowings at the
end of FY 2011 stand at Rs 7,718.2mn comprising of Rs 5,540mn of US$ denominated
loans. Rs 2,200mn of US$ denominated debt is repayable with in a period of one year.
Further, during FY 2012 Rs. 1,680mn of rupee denominated debt will become
repayable. With an underlying assumption that the company will roll over some of the
debt and there will be no further big ticket acquisition, we expect the company will
reduce its debt base by paying off Rs. 2,683mn during FY 2012. As un-leveraging
process continues, it will reduce the risk on Marico and positively impact the return on
capital employed.
A C Choksi
Capex Breakdown*
All figures in Rs mn FY 2012E FY 2013E FY 2014E
Kaya
No. of new clinics 7 6 5
Ca pex per clinic 12 12 12
Total capex for Kaya 84 72 60
Maintena nce Ca pex 400 400 400
Other Ca pex 300 250 250
Total Capex 784 722 710
Source: Company , AC Choksi Inst i tuti onal Research
*Assumi ng no si gnifi cant acqui si t ion

Debt run off schedule
All figures in Rs mn FY 2012E FY 2013E FY 2014E
Current debt 7, 718 5, 036 2, 784
Repa yment of debt 2, 682 2, 253 1, 649
Debt a t the end of the yea r 5, 036 2, 784 1, 135
Source: Company, AC Choksi Inst it ut ional Research



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Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
?Working Capital Cycle :
Going forward, we expect the trade account receivable days to increase gradually
primarily due to the increase in the proportion of international business, where average
receivable days are higher. On the other hand, inventory days are expected to decline
going forward, as exceptionally high raw material cost scenario seems to be over which
will lead to a decline in raw material position building. Further, copra procurement via
contract farming will ensure steady supply of throughout the year. Further, we expect
trade account payable days will increase going forward with the increasing share of
modern trade in the retail business. As modern trade is a very thin margin business, we
expect the retailers to negotiate for prolonging credit terms.
May 23, 2011
A C Choksi
Investment Concerns
?Raw material availability and seasonality:
?Higher excise tax on CNO category:
Marico's key raw materials include copra, kardi oil, sunflower oil, corn oil and rice bran
oil which are commodity crops whose availability is seasonal. Any short fall in supply
due to disruption in seasonality of these raw materials could adversely impact
company's operations. During FY 2011, higher crude, copra, rice bran and other edible
oil prices, pressurized volumes/margins across the board. We have factored in an
increase in raw materials in our estimates. However, if raw material prices increases
more than that, it may adversely affect Marico by either affecting margins or volumes.
This will lead to deviation from our estimates.
Coconut oil was categorised as edible oil and hence was not subject to excise duty.
However, in a 3 June 2009 circular, Parachute in containers of up to 200ml was
classified as hair oil and hence subject to an excise tax of 10.2% less abatement (that is, a
6.63% tax). Marico had created a provision for the same till FY 2010. However, during
FY 2011 Marico has reversed its provisions made in lieu of excise obligations as per
AS(29.) If the outcome of the ongoing litigation is unfavourable for the company it
will lead to contingent liability.



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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
?Unrest in MENA:
?Slowdown in consumer spending:
?Further big ticket acquisition:
?Currency risk:
Marico derives approximately 9-10% of its revenue from the MENA region. It has
three factories producing consumer goods for this region. Although we have factored
in the impact of civil unrest in our estimates, if it stretches for more-than-expected
period it will lead to higher-than-expected decline in sales growth.
During macro-economic slowdown and rising inflation consumers tend to reduce
spending by down trading. Considering Marico's premium priced flagship products, a
slowdown in consumer spending would be a risk to our earnings estimates and target
price.
Marico was on acquisition spree in the recent past which resulted into leveraging its
balance sheet significantly. Thus, any further large acquisition done by increasing
leverage will impact the balance sheet and return ratios of the company.
Marico derives approximately 23% of its revenues from International business.
However, we have not forecast the impact of currency fluctuations for our estimates, as
we presume a constant currency exchange rate when forecasting. Therefore any
significant currency fluctuation may impact our revenue estimates. Any further
expansion into new geographies and undertaking of new projects exposes the
company to additional foreign currency risks.
May 23, 2011
A C Choksi



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December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
Valuations:
In our DCF model we have derived explicit free cash flow projections till FY 2014 after
which we have assumed a terminal value. Based on a WACC of 9.65% and a perpetual
growth rate of 5% we arrive at a DCF fair value of Rs 158 for the Marico.
May 23, 2011
A C Choksi
All figures in Rs mn FY 2010A FY 2011A FY 2012E FY 2013E FY 2014E
EBIT 3,334 3,669 4,481 5,650 7,253
NOPLAT 2,690 2,819 3,724 4,633 5,851
Depreciation 601 708 752 748 743
Change in working capital 1,063 1,153 637 788 857
Capex 1,564 1,921 784 722 710
Free cash flow 664 453 3,055 3,871 5,027
Free Cash flow analysis
Source: Company , AC Choksi Inst i tuti onal Research

DCF sensitivity analysis
Terminal growth rate
158.0 3.00% 4.00% 5.00% 6.00% 7.00%
8.65% 133.9 160.6 202.0 274.8 435.8
9.15% 122.8 144.7 177.3 230.7 333.7
WACC 9.65% 113.3 131.7 158.0 198.7 270.2
10.15% 105.2 120.7 142.4 174.4 226.8
10.65% 98.1 111.4 129.5 155.4 195.4
Source: A C Choksi Inst it ut ional Research



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December 24, 2010
Business Overview
FINANCIALS (Consolidated)
May 23, 2011
A C Choksi
INCOME STATEMENT
Particulars ( Rs. Mn) FY10 FY11A* FY12E FY13E FY14E
Revenues-CPD 25, 011 29, 186 34, 625 41, 169 48, 877
Excise Duty 11 12 14 16 20
Net Revenues-CPD 25, 001 29, 174 34, 611 41, 152 48, 857
Income from services 1, 607 2, 109 2, 474 2, 851 3, 264
Total Sa les and Services 26, 608 31, 283 37, 085 44, 003 52, 121
Other Income 183 279 298 313 329
Total Revenue 26,790 31,562 37,383 44,317 52,450
Cost of goods sold 16, 590 20, 900 24, 406 28, 669 33, 315
Gross profit 10,201 10,662 12,977 15,647 19,135
Gross p rof it Ma rgin 38. 1% 33. 8% 34. 7% 35.3% 36. 5%
Selling, Gen & Adm Expenses 2, 755 2, 825 3, 361 4, 001 4, 760
Ad. & Sa les Promotion 3, 511 3, 460 4, 383 5, 249 6, 378
EBITDA 3,934 4,377 5,232 6,397 7,996
EBITDA Margin 14. 7% 13. 9% 14. 0% 14.4% 15. 2%
Depreciation & Amortization 601 708 752 748 743
EBIT 3,334 3,669 4,481 5,650 7,253
EBIT Ma rgin 12. 4% 11. 6% 12. 0% 12.7% 13. 8%
Finance Charges, Net 257 393 277 153 62
Exceptional Items 98 (489) - - -
Net Income Before Taxes 2,979 3,764 4,204 5,496 7,191
Provision for Income Ta xes 643 850 757 1, 017 1, 402
Repor ted Net Income 2,317 2,864 3,446 4,479 5,788
PAT Ma rgin 8. 6% 9. 1% 9. 2% 10.1% 11. 0%
Adjusted Net Income 2,415 2,375 3,446 4,479 5,788
Dividends 402 406 412 418 424
Dividend Ta x 70 69 70 71 72
*Provisional



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December 24, 2010

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December 24, 2010
Business Overview
May 23, 2011
BALANCE SHEET
Particulars (Rs. Mn) FY10 FY11A* FY12E FY13E FY14E
Ca sh a nd cash equivalents 1,115 2, 131 1, 544 2, 551 5, 390
Tra de a ccounts receivable 1,507 1, 880 2, 228 2, 661 3, 172
Inventories 4,448 6, 011 6, 553 7, 462 8, 397
Loans and Advances 1,900 2, 061 2, 429 2, 860 3, 362
Total curr ent assets 8,970 12,082 12,755 15,534 20,322
Net property 2,868 4, 081 4, 113 4, 088 4, 055
Goodwill 850 3, 976 3, 881 3, 786 3, 691
Investments 827 892 892 892 892
Ca pital WIP 1,129 816 823 818 811
Deffered Tax a ssets 616 301 371 440 521
Other non-current a ssets 0. 10 - - - -
Total non-curr ent assets 6,291 10,066 10,079 10,023 9,970
Total assets 15,260 22,148 22,834 25,556 30,291
Sundry Creditors 3,096 4, 132 4, 948 5, 891 6, 937
Uncla imed Dividend 2 2 3 3 3
Other Liability 233 256 282 310 341
Security Deposit 11 11 11 11 11
Interest Accrued 24 - - - -
Provisions 768 652 433 447 461
Uncla imed Pref. Share Capita l 0.3 0. 3 0. 3 0. 3 0. 3
Ba nk Overdra ft 3 3 3 3 3
Total curr ent liabilities 4,136 5,057 5,679 6,664 7,756
Long term debt 4,459 7, 718 5, 036 2, 784 1, 135
Other long term liabilities - - - - -
Total long term liabilities 4,459 7,718 5,036 2,784 1,135
Minority Interest 125 219 - - -
Shareholders' equity 6,540 9, 155 12, 119 16, 109 21, 400
Total liabilities and equity 15,260 22,148 22,834 25,556 30,291
*Provisional

A C Choksi



35

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?Valuation
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Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
CASH FLOW STATEMENT
Particular s (Rs. Mn) FY10A FY11A* FY12E FY13E FY14E
Net income (loss) before ta xes 2,979 2,864 3,446 4,479 5,788
Operating pr ofit befor e working capital changes 3,977 3,572 4,198 5,226 6,530
(Increase)/Decrease in Current Assets (1968) ( 2097) ( 1259) (1772) ( 1949)
Increase/(Decrea se) in Current Liabi lities 681 944 622 985 1092
Cash generated from operations 2690 2420 3561 4439 5673
Tax Pai d (629) - - - -
Net cash from oper ating activities 2061 2420 3561 4439 5673
Cash flow from investing activities
Purchase & Sa le of fixed asset s (1487) ( 1609) (790) (717) (703)
Puchase & Sal e of Investment s (706) (64) - - -
Deffered ta x a ssets - 315 ( 70) (69) (81)
Interest /Div. Income 25 - - - -
Interest Income/a ccrued 94 (24) - - -
Goodwi ll on Consoli dat ion - ( 3126) 95 95 95
Minority Interest - 93 (219) - -
Net cash used in investing activities (2074) ( 4414) (984) (691) (690)
Cash flows from financing activities
Proceeds from the issue of sha re capital 218 5 - - -
Reserves - 219.89 - - -
Proceeds a nd Repayment of borrowi ng 1001 3259 ( 2682) (2253) ( 1649)
InterCorpora te deposit s ta ken / (repaid) (50) - - - -
Fina nce Charges (272) - - - -
Divi dend & Dividend dist. Ta x Paid (472) (474) (482) (489) (496)
Uncl aimed Di vidend Pa id 0. 1 0.1 0.1 0. 1 0.0
Net Cash from financing activities 281 3010 ( 3163) (2741) ( 2144)
Increase/Decrease in ca sh and ca sh equiva lents 229 1,016 (586) 1,006 2,839
Cash and cash equivalents at t he beginning 883 1,112 2,128 1,542 2,548
Cash and cash equivalents at the end 1,112 2,128 1,542 2,548 5,387
*Provisional

A C Choksi



36

Nurturing Wealth

?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
RATIOS
Particulars ( Rs. Mn) FY10 FY11A* FY12E FY13E FY14E
Growth (%)
Gross sa les 11.1% 16. 7% 18. 6% 18. 9% 18.7%
Total sales 11.4% 17. 6% 18. 5% 18. 7% 18.4%
EBITDA 24.4% 11. 2% 19. 6% 22. 3% 25.0%
Net profits 22.8% 23. 6% 20. 3% 30. 0% 29.2%
Per Share
Earnings (Rs) 3.80 4. 66 5. 61 7. 29 9.42
Dividends 0.66 0. 66 0. 67 0. 68 0.69
Book va lue 10.73 14. 90 19. 72 26. 22 34.83
Ca sh 2.82 3. 51 4. 39 6. 07 8.21
Margins (%)
Gross Margin 38.3% 34. 1% 35. 0% 35. 6% 36.7%
EBITDA 14.8% 14. 0% 14. 1% 14. 5% 15.3%
PAT 8.7% 9. 2% 9. 3% 10. 2% 11.1%
Financial
Debt/Equity (x) 0.68 0. 84 0. 42 0. 17 0.05
Debtor Days 61. 1 63. 1 67.9 69. 0 70. 3
Asset Turnover 1. 7 1. 4 1.6 1. 7 1. 7
Dividend payout 13.1% 11. 0% 11. 7% 11. 8% 12.2%
Valuations
PE (x) 35. 5 29. 0 24.1 18. 5 14. 3
P/BV (x) 12. 7 9. 1 6.8 5. 1 3. 9
EV/EBITDA (x) 21. 9 20. 2 16.5 13. 0 9. 8
EV/Sales (x) 3. 2 2. 8 2.3 1. 9 1. 5
ROE 35.4% 31. 3% 28. 4% 27. 8% 27.0%
ROCE 30.3% 21. 7% 26. 1% 29. 9% 32.2%
Source: Company, A C Choksi Inst i tut i onal Research

A C Choksi



37

Nurturing Wealth

?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
A C Choksi
Technical Chart

Technical View for Marico:
The scrip is in uptrend started from Rs. 112.10 since Feb'11 and it made top of Rs. 150 in April'11. Scrip got support at
Rs. 127 and pst two weeks it is moving up despite weakness in general marketing indicating underlying strength in it. As
shown on chart, 200 days EMA is placed at Rs. 125 which is strong support where investors can buy for the decent
target of Rs. 158, in short to medium term. Long term target for the scrip is seen around Rs. 170. Rock bottom for the
scrip is seen around Rs. 115 if the market dips in short to medium term.
Support: Rs. 125
Target: Rs. 158/170
Rock Bottom: Rs. 115



38

Nurturing Wealth

?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
Notes:
May 23, 2011
A C Choksi



39

Nurturing Wealth

?Valuation
prices.


Nurturing Wealth


December 24, 2010

Nurturing Wealth
December 24, 2010
Business Overview
May 23, 2011
Notes:
A C Choksi
A C Choksi Institutional Research

research@acchoksi.com 40
Equity Research Team
Swati Gupta- 022 30219046
swati@acchoksi.com
Disclaimer
The information and views presented in this report are prepared by A C Choksi Share Brokers Private Limited.The information contained herein is based on our analysis and up on
sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any
loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based
on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned
in this report, investors may please note that neither A C Choksi Share Brokers Private Limited nor any person connected with any associated companies of A C Choksi Share
Brokers Private Limited accepts any liability arising from the use of this information and views mentioned in this document.The analysts for this report certifiesthat all of the views
expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be,
directly or indirectly related to specific recommendations or views expressed in this report.
Disclosure of Interest
Analyst ownership of the stock NO
Broking Relationship with the company covered NO
Investment Banking relationship with the company covered NO
Discretionary Portfolio Management Services NO


May 23, 2011
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