Marico Ltd: A Safe Parachute!

Recommendation: BUY We are initiating coverage on Marico Ltd with a one-year price target of
CMP: Rs417 Rs522 –an upside of 25% from the current levels. The company operates
Target price: Rs522 in the personal care, wellness and processed edible oils categories in India
Upside: 25% as well as abroad and has a portfolio of 16 successful brands. The company
Market cap: Rs24.2bn dominates the Rs8bn branded coconut hair oil market with its flagship brand
Half yrly avg. Vol.: 32,090 – Parachute and holds No. 2 position in the Rs14bn edible oils market with
Face value: Rs10 its brands Saffola and Sweekar. It has also ventured into the skin care (Kaya)
and services (Sundari) business. We expect Marico to continue its growth
52 Week H/L: Rs587/237
momentum aided by acquisitions, international expansions and new
BSE code: 531642
launches. Given the strong position of the company in the hair care market
NSE code: MARICO
and good future prospects, we recommend a ‘BUY’.
Bloomberg code: MRCO@IN
Reuters code: MRCO.BO
Ø The acquisition of ‘Nihar’ brand from Hindustan Lever Ltd (HLL) has further
strengthened Marico’s position in the coconut oil segment and has enabled it
to become a clear leader in the perfumed coconut oil segment with a market
Share holding pattern share of 77%. While the company has paid a significant premium for the
acquisition, we believe it would be value accretive in the long run due to
March’06 (%)
broadened brand portfolio, enhanced market share and lower competition risk.
Promoters 66.6
Non Promoter Corp Holding 1.9
Institutions 10.8 Ø Marico was able to maintain MRP of Parachute, even during a declining copra
FIIs 14.2 price cycle, demonstrating its strong brand equity. Market share of Parachute
Public & Others 6.4 brand (including flexi packs) also improved by 2% yoy to over 51% during
FY06. Ability to sustain this pricing premium would enable Marico to move into
a higher profitability trajectory.

Share price chart Ø Maricoentered into the soaps segment via international (Camelia, Magnolia
BSE_SENSEX Marico and Aromatic brands in Bangladesh) and domestic (Manjal brand) acquisitions.
300 The company is currently prototyping personal care soap under the Parachute
250
200 brand. The contribution from the soap segment is currently miniscule but
150 expected to rise steadily.
100
50
0 Ø Skin care service venture - Kaya recorded a turnover of Rs480mn during FY06
Jun-05

Jun-06
Sep-05

Dec-05

Mar-06

and is expected to break even at PBT level in FY07. The Sundari business will
remain in the investment phase and is unlikely to breakeven over the next two
years.

Ø We expect Marico’s revenues to grow at a CAGR of 22.1% and net profit at a

CAGR of 22.9% over the next two years.

Table: Key Financials (Standalone)

Period to FY04 FY05 FY06 FY07P FY08P
Analyst (Rs mn) (12) (12) (12) (12) (12)
Vanmala Nagwekar Net sales 8,473 9,421 10,449 12,938 15,581
mala@indiainfoline.com % yoy 14.8 11.2 10.9 23.8 20.4
91-22-6749 1754 OPM (%) 8.4 8.9 13.3 13.7 13.7
APAT 580 738 989 1,193 1,492
% yoy 9.3 27.3 34.0 20.7 25.0
Retail Sales Equity 290 580 580 580 580
Biren Patel EPS (Rs) 20.0 12.7 17.0 20.6 25.7
EV/sales 0.4 1.5 3.2 1.9 1.6
91-22-6648 9000
ROCE (%) 33.9 28.8 21.9 31.9 38.2
RONW (%) 32.2 33.8 35.7 34.4 34.4
P/E (x) 6.5 19.1 31.7 20.2 16.1
June 23, 2006
 Marico Ltd: A Safe Parachute!

Investment rationale
Successful realignment of product portfolio
Over the last few years, Marico has reduced its focus on the low margin products
and invested more in the high margin products. As a result, contribution of the
high margin portfolio has increased from 72% in FY05 to 76% in FY06 while the
contribution of low margin portfolio has decreased to 24% from 30% last year.
Marico’s high-margin brands such as Parachute, Saffola and the hair care range
registered double-digit volume CAGR over the past four years and grew by 11%,
10% and 16% respectively during FY06.

Chart: Rising contribution of high margin portfolio

Contribution (%)
90
80
70
60
50
40
30
20
FY03 FY04 FY05 FY06
High margin Low margin

Source: Company, IIL Research

The company has allocated nearly 95% of the total advertising & sales promotion
spends to this portfolio. The strategy has yielded returns in terms of improved
profitability. Operating margins of the company expanded sharply by 440bps to
13.3% during FY06. Marico now has a well-diversified product portfolio with many
successful brands – hair care (Parachute, Hair & Care, Shanti, Mediker, Oil of Malabar
(slowly defocussing)), soaps (Camelia, Magnolia, Aromatic and Manjal), edible oils
(Saffola, Sweekar (slowly defocusing)), foods (Mealmaker, Sil), fabric care (Revive)
and branded services (Kaya and Sundari). The company has also forayed into
categories such as hair conditioners (Silk-n-Shine), male grooming products
(Parachute After Shower Cream) and baby care (Sparsh baby oil) during the year.
As a result of this diversification, Marico’s dependence on the Parachute brand has
consistently reduced from 70-75% of the topline in early 90’s to ~40-45% in FY06.

Table: Portfolio Composition

FY01 FY06
Focus brands Rs mn % Rs mn %
Domestic FMCG
CNO Parachute 2,870 43.0 3,870 34.0
Hair Oil Brands 320 5.0 1,250 11.0
Saffola 1,030 15.0 1,830 16.0
Others 110 2.0 80 1.0
International FMCG 390 6.0 1,170 10.0
Kaya - - 480 4.0
Sundari - - 60 1.0
Focus brands 4,710 70.0 8,740 76.0
CAGR(%) 13.2
Non-Focus brands
Sweekar 1,010 15.0 990 9.0
Sil 100 1.0 70 1.0
Revive 80 1.0 150 1.0
Others 810 12.0 1,500 13.0
Non-Focus brands 2,000 30.0 2,710 24.0
CAGR(%) 6.3
Source: Company
June 23, 2006 2
 Marico Ltd: A Safe Parachute!

Rising market share and strong pricing power of core brand

Marico’s market share in the coconut oil segment has increased by more than
500bps to 45% over the past three years, aided by increased brand building,
expansion of distribution network, successful brand extensions and increased
efficiency. Market share of Parachute brand (including flexi packs) also improved
by 2% yoy to 51%+ during FY06. The Nihar brand is expected to add about 8% in
Marico’s CNO (coconut oil) market share, taking it to ~60% in FY07.

Chart: Increasing market share in the coconut oil segment

5000 46

44
4500
(Rs mn)

42

(%)
4000
40
3500 38

3000 36
2001 2002 2003 2004 2005
Coconut oil sales Market share

Source: AC Nielsen

Despite declining prices of copra (lower by ~25%), the company was able to
maintain the MRP of Parachute during the year, reflecting the strong pricing power
of the brand. Lower raw material prices (expected to remain weak in FY07 also)
have also enabled a sharp 480bps margin improvement during the year. Improving
pricing power and Nihar acquisition have strengthened Marico’s position in the
hair care market. We believe that going forward if Marico displays ability to maintain
MRP, operating margins could be sustained at the current high levels.

Pace of new product launches to continue

Marico consistently focuses on new product development. Since 2000, Marico
rolled out 18 prototypes nationally after successful testing. Besides strengthening
its flagship brands – Parachute and Saffola, it has also widened its product and
service portfolio by entering into new categories like skin care, soaps and baby
care products. During FY06, Marico launched various new products like Parachute
After Shower Non-sticky Hair Cream (current market share at ~30%), Sparsh -
baby oil (in Andhra Pradesh), Therapie - herbal oil (in Mumbai), Parachute Jasmine
Soap (in Kolkata), Saffola High Fiber Flour and Saffola Salt. The company also
introduced anti-dandruff variant of Parachute After Shower in March 2006. The
share of new products to Marico’s turnover has increased to 30% in FY06 from
3% in FY00. Thanks to the increasing contribution of new products, Marico’s
dependence on Parachute has reduced from 70-75% in early 90’s to 40-45% of
the topline.

Current list of prototypes

√ Parachute Sparsh Baby Oil
√ Saffola functional foods
√ Parachute Therapie – Anti Hair fall
√ Parachute Jasmine Soap
√ Parachute Hair Perfect
June 23, 2006 3
 Marico Ltd: A Safe Parachute!

Nihar acquisition to drive up revenue growth in FY07

Marico strengthened its position in the perfumed oil category by acquiring Nihar
brand from Hindustan Lever Ltd (HLL) for a consideration of Rs2.16bn (1.8 times
of sales (plus transaction costs of ~Rs110mn)) during January 2006. The
acquisition was funded mainly through short-term loans. The company plans to
raise ~Rs2-2.5bn through a mix of debt and equity (may include rights issue) for
repaying the debt taken for Nihar acquisition. Nihar has a market share of 9% in
coconut oils and 40% in perfumed oils segment. Post acquisition, Marico’s share
in the perfumed oil category has increased to 77%. The acquisition will also help
Marico in strengthening its presence in the eastern markets (particularly in Bihar
and Jharkhand). The brand has an annual turnover of Rs1.2bn (~10% of Marico’s
revenues) spread over two segments - coconut oil and perfumed hair oils. Nihar
(with over 50% contribution from value added perfumed hair oil product - Nihar
Naturals) has higher gross margins than Marico and is expected to help the
company in improving its margins going forward. We believe that in the medium
to long run, this acquisition would be positive for the company through increased
turnover, market share, lower competition risk, synergies across value chain and
tax benefits.

Chart: Leader in the value added coconut oil segment

Others
Clinic 2%
22% Nihar
Naturals
51%

Parachute
Jasmine
25%

Source: Industry

Entry into soaps segment

Marico ventured into the toilet soap market through domestic and international
brand acquisitions as a future growth strategy. Earlier this year, the company
acquired three soap brands - Camelia, Magnolia (aggregate turnover of about
Taka 56mn and market share of 1.5%) and Aromatic (turnover of Taka 300mn
and market share of 5%) in the Taka 6bn Bangladesh toilet soaps market. Aromatic
and Camelia are likely to add around Rs280mn revenues in FY07. In the domestic
market, Marico acquired a herbal bath soap brand - Manjal (annual turnover of
~Rs90mn) from Oriental Extractions Pvt. Ltd in January 2006, having presence
largely in Kerala. The acquisition although relatively small in size (0.2% share in
the Rs45bn Indian soap market) marks Marico’s entry into the large personal
care category of toilet soaps in the domestic market. The company is currently
test marketing personal care soaps (like Dabur’s Vatika soap) under the Parachute
brand.

June 23, 2006 4

 Marico Ltd: A Safe Parachute!

International business to aid topline growth

International FMCG - Value growths Marico’s international business (comprising FMCG business, Kaya in UAE and
Rs mn FY06 FY05 Growth Sundari in US) contributes ~10% to the total turnover with majority of revenues
(12) (12) (%) coming from Bangladesh and Middle East. During FY06, this business generated
Bangladesh 650 540 22.0 revenues of Rs1.17bn and Marico expects it to grow at a CAGR of 30%+ over the
Gulf & others 520 420 24.0 next few years. Marico’s Parachute coconut oil dominates the Bangladesh market
Total 1,170 960 23.0
with a market share of over 50% while Parachute hair cream has garnered a
Source: Company
market share of over 23% in UAE. Marico plans to enter into new geographies
like Pakistan, Malysia and Indonesia and expects the contribution of its
international business to increase to ~20% by 2010.

Services business to turn around

Marico ventured into the Indian Skin care solutions business with Kaya Skin Clinics
in Q3 FY03. The company invests around Rs10mn per clinic, which achieves
Kaya growth breakeven within 6 months to one year. The Kaya business contributes around
Mar’06 Mar’05 4% of the group’s total revenues and has generated revenues of Rs480mn during
Clinics 45 33 FY06. Kaya has extended its cosmetic dermatological services to 42 clinics in
Cities 18 11 India, two in Dubai and one in Abu Dhabi while the customer base in India has
Customer base 125,000 40,000 increased to nearly 125,000 clients. Marico now plans to consolidate its expansions
Source: Company
and concentrate on Kaya. After FY07, Marico plans to open ten new clinics every
year. The company expects to increase its revenues from Kaya by 25% and achieve
breakeven at PBT level in FY07. The Sundari business is expected to remain in
the investment phase and is unlikely to breakeven over the next two years. The
services business currently contributes ~10-12% to the total turnover of the
company.

Planned capex for the next 3 years

Following is the capex plan outlined by the company for the next three years.

Particulars Rs mn
Nihar acquisition 2,300
Expansion of Kaya 400
Brand building 300
Building (New corporate office) 600
Total 3,600
Source: Company

Marico is looking at acquiring local consumer product companies and brands in

the African sub-continent. The company has appointed Ernst & Young, a leading
management consulting firm, to identify possible acquisition targets and
distribution tie-ups in Africa, South East Asia and Middle East. The company plans
to raise ~Rs2-2.5bn through a mix of debt and equity (may include rights issue)
for repaying the debt taken for Nihar acquisition, for funding any other acquisition
and other capex needs mentioned above. The company has received approval
from shareholders for raising its authorized capital to Rs2.15bn.

June 23, 2006 5

 Marico Ltd: A Safe Parachute!

Concerns

Rising raw material prices and higher adspend could prune down margins
During FY06, Marico’s operating margins expanded significantly by 440bps to
13.3% aided by ~25% drop in raw material prices. Copra, Safflower, Sunflower,
Kardi are the key raw materials for Marico. For the past 1.5-2 years, the copra
prices are ruling weak and are expected to remain fairly stable during the year.
However, if the raw material prices start firming up and if there is lack of availability
(in FY03, Saffola sales were impacted due to inadequate availability of Kardi oil),
the company will witness a sharp dip in its operating margins. Higher packaging
cost (8.6% of sales in FY06) on account of rising crude oil prices will also restrict
margin expansion.

OPM
15.0
13.3 13.7 13.7
12.5 10.8
9.6
8.4 8.9
(%)

10.0

7.5

5.0

FY07P

FY08P
FY02

FY03

FY04

FY05

Source: Company, IIL Research FY06

Marico has a clutch of high contribution new products in the pipeline, which are
being successfully prototyped and are likely to be launched in the near future.
Initially these products will remain in the investment stage where the company
will have to invest heavily in advertising and sales promotion. Thus, the rising
adspend will also put pressure on margins.

17.5 OPM Advt 17.5

15.0 15.0

12.5 12.5
(%)
(%)

10.0 10.0

7.5 7.5

5.0 5.0

2.5 2.5
Q1 FY04

Q2 FY04

Q3 FY04

Q4 FY04

Q1 FY05

Q2 FY05

Q3 FY05

Q4 FY05

Q1 FY06

Q2 FY06

Q3 FY06

Q4 FY06

Source: Company, IIL Research

Parachute coconut oil classified as edible oil

Parachute coconut oil is primarily used as hair oil, however while levying tax, it is
classified as edible oil (as it is used for cooking purpose in South India). It is also
exempted from the excise duty burden (16% on hair oils), and only 4% VAT rate
is applicable on it compared to 12.5% charged on other FMCG products. If the
classification of Parachute coconut oil is changed from edible oil to hair oil, the
indirect tax burden will increase sharply.
June 23, 2006 6
 Marico Ltd: A Safe Parachute!

Valuations could be impacted due to likely rights issue

Marico plans to raise ~Rs2-2.5bn through a mix of debt and equity (may include
rights issue) for repaying debt taken for Nihar acquisition and to fund its future
capex requirements. An possible equity dilution may impact estimates in the
medium term. Since the quantum of the rights issue is not ascertainable based
on the existing information available from the company, we are not factoring any
equity dilution from the likely rights issue in our projections.

Sundari: few more years required to turn around

Marico forayed into the international skin care market in February 2003 by
acquiring Sundari brand. Marico picked up controlling equity interest in the US-
based Sundari LLC - an ayurvedic skin care company with a turnover of $1mn
and made an investment of Rs55mn in Sundari LLC in 2003. Marico has been
unable to grow Sundari revenues in the last three years and expects it to remain
in the growth and investment phase and will take few more years to start
contributing positively to the bottomline.

Valuations

Marico has reported 10.9% sales growth at Rs10.4bn and 34% PAT growth at
Rs989mn in FY06. We expect Marico’s revenues to grow at a CAGR of 22.1% and
net profit at a CAGR of 22.9% over the next two years. Our FY07 sales forecast is
based on assumption of 12% growth in edible oil segment, 15% growth in hair
oil segment (+ revenues from Nihar) and 2% growth in others segment (incl.
Processed foods + revenues from Manjal). At the current market price of Rs417,
the stock is trading at 20.3x FY07E EPS of Rs20.6 and 16.2x FY08E EPS of Rs25.7.
We initiate coverage with a one-year price target of Rs522 – an upside of 25%
from the current levels.

Table: Peer group comparison

FY06 FY07E FY08E
Company Net PAT EPS P/E EV/ Net PAT EPS P/E EV/ Net PAT EPS P/E EV/
sales (Rs) (X) sales sales (Rs) (x) sales sales (Rs) (x) sales
Colgate 11,242 1,376 10.1 35.1 4.6 12,815 1,898 14.0 25.3 4.0 14,326 2,167 15.9 22.3 3.6
Dabur * 13,697 1,891 3.3 40.5 6.3 15,076 2,201 3.8 35.1 5.7 16,561 2,472 4.3 31.1 5.1
GCPL# 6,573 1,212 21.5 29.7 6.2 7,628 1,479 26.3 24.3 5.3 8,865 1,862 33.2 19.2 4.5
HLL# 123,036 16,717 7.6 28.8 4.5 137,997 21,051 9.6 22.8 4.0 153,368 25,233 11.5 19.0 3.6
Marico * 10,449 989 17.0 24.5 3.2 12,938 1,193 20.6 20.3 1.9 15,581 1,492 25.7 16.2 1.6
ITC# 97,905 22,354 6.0 28.7 5.1 115,314 28,000 7.5 22.8 4.3 136,198 32,911 8.8 19.4 3.6
Source: IIL Research, *Standalone, # Consensus Estimates, HLL - Year-end December.

June 23, 2006 7

 Marico Ltd: A Safe Parachute!

Company background

Marico Ltd, formerly known as Marico Industries Ltd, was incorporated in the
year 1988. It is a closely held company of the Mariwala family and is headed by
Harsh Mariwala, Chairman & Managing Director. Marico commenced its operations
by taking over the consumer products division of Bombay Oil Industries Ltd in the
year 1990. Marico’s brands and their extensions occupy leadership positions
with significant market shares in respective categories - coconut oil, hair oils,
anti-lice treatment, premium refined edible oils and fabric care. The company has
also entered the skin care segment through Kaya Skin Clinics in India and Sundari
range of Ayurvedic skin care products in the US and in soaps business by acquiring
Camelia, Magnolia and Aromatic brands in Bangladesh and Manjal brand in India.
Marico has also successfully built an international business spread over 18
countries - the Middle East and the Asian sub-continent, especially Bangladesh.
The overseas sales franchise of Marico’s consumer products is one of the largest
amongst Indian companies. Marico’s presence overseas (whether as exports
from India or as local operations in a foreign country) is entirely through branded
services and branded FMCG products.

Table: Plants / Factories

Plants / Factories Capacity Utilization (actuals 05-06) Products manufactured
Dehradun 35 KL per day Avg of 60-70% Hair oils
Daman 9 KL per day } Hair oils
Goa 160 MT per day PCNO
Pondicherry
Kanjikode
100 MT day
}
100 MT per day
Avg of 70% PCNO
PCNO
Jalgaon 140 MT per day Approx 65-70% Edible Oils
Saswad 5 MT per day Approx 70% SIL
Mouchak N/A N/A N/A
Source: Company, PCNO – Parachute coconut oil

Business
Marico started its business with just two major brands: Parachute and Saffola.
The portfolio is now expanded to 16 strong brands Parachute, Nihar, Saffola,
Sweekar, Hair & Care, Shanti, Mediker, Oil of Malabar, Mealmaker, Sil, Revive,
Kaya, Sundari, Camelia, Magnolia and Aromatic.

Table: Business segments

Segment Categories
Domestic Business Hair Care
Edible oils
Niche Fabric care
Healthy/ Processed Foods
International Hair Care brands in SAARC countries, Middle East, South East
Asia and US
Aesthetics Services Kaya Skin Clinics
Global Ayurvedics Sundari range of Skin Care Products
Source: Company

June 23, 2006 8

 Marico Ltd: A Safe Parachute!

Table: Brand wise market share

Brand Category Indicative market Rank
share range %
Parachute, Oil of Malabar, Nihar Coconut Oil 59-60 1
Hair Oil (Hair & Care, Parachute
Jasmine, Parachute Advanced,
Shanti Badam Amla, Nihar) Hair Oils 17-19 2
Mediker Anti Lice Treatment 96-100 1
Saffola & Sweekar High Margin Refined
Oils in Consumer packs 13-14 3
Sil Jams 7-8 2
Revive Fabric Starch ~100 1
Source: Company

Domestic turnover accounts for almost 89% of the total turnover of Marico group.
Revenue breakup generated from each of the businesses is depicted in the chart
below:

Chart: Turnover Contribution (%) – FY06

International Kaya &

FMCG Sundari
10% 5%
Others Coconut Oil
14% 33%
Processed
Foods
1%
Fabric Care
1% Hair Care
Edible Oils
11%
25%

Source: Company, IIL Research

Table: Acquisition History

Product Categories Date of Acquisition Turnover (Rs mn)
Nihar Coconut Oil Jan-06 1,200
Manjal soap Soaps Jan-06 100
Camelia Soaps Early’ 05 40
Aromatic Soaps Oct-05 160
Sundari LLC Skin Care Feb-03 60
Oil of Malabar Coconut Oil Oct-99 100
Mediker Anti-lice Shampoo Jun-99 200
Source: Company, IIL Research

Management Profile
Name Designation
Harsh Mariwala Chairman & Managing Director
Bipin Shah Director
Nikhil Khattau Director
Atul Choksey Director
Rajeev Bakshi Director
Rajen Mariwala Director
Jacob Kurian Additional Director
Hema Ravichandar Additional Director
Milind Sarwate Chief Financial Officer
June 23, 2006 9
 Marico Ltd: A Safe Parachute!

Industry

Coconut hair oil segment

The size of the hair care market in India is estimated at Rs37bn. Coconut oil and
hair oil together constitute ~61% (Rs23bn) while, the shampoo segment accounts
for 38% (Rs14bn) of the total market. Indian coconut oil market is estimated to
be at ~220,000KL. Out of which, almost 64% is unorganized (including loose)
while the rest 36% is organized. The size of the branded coconut oil market is
estimated at Rs8bn, where Marico with its flagship brand ‘Parachute’ - the world’s
largest packaged coconut oil brand is the market leader with a market share of
over 50%.

Chart: Indian coconut oil market Chart: Category wise break-up

Unorganized Hair care market

+ Loose Others
64% 1%
Organized Coconut oil
36% 28% Shampoo
38%

Hair oils
33%

Source: Industry Source: Industry

Value-added hair oil segment

Value-added hair oil segment mainly comprises Amla oil, cooling oil, perfumed oil
and other value-added, non-sticky hair oils. The revenues from this segment
have grown at a CAGR of 11% during 2003-05. After acquiring Nihar brand from
HLL, Marico has become clear leader in the perfumed coconut oil segment (Nihar
Naturals) with a market share of 77%.

Chart: Hair oil segment Chart: Company-wise market share in hair oil

12,500 16.0 Emami Nihar

12,000 14.0 Dey's 7% 4% Dabur
11,500 8% 33%
12.0
11,000 10.0
(Rs mn)

Bajaj
10,500
(%)

8.0 8%
10,000
6.0
9,500
9,000 4.0
8,500 2.0
8,000 - Others Marico
2001 2002 2003 2004 2005 19% 21%

Source: AC Nielsen Source: Industry, Nihar’s share will get added to Marico

June 23, 2006 10

 Marico Ltd: A Safe Parachute!

Refined edible oil segment

Refined oil consumer pack (ROCP) segment has registered a CAGR of 23% at
Rs36bn during 2000-2005. Sunflower oil accounts for ~37% of the market share
in the edible oil industry while Soyabean and Palm oil accounts for 28% and 19%
respectively. Due to shortage of raw materials there is limited competition in the
safflower oil business. Marico is the only producer of branded safflower oil with
its brands Saffola and Sweekar. From a single oil (safflower or kardi) offered
under the Saffola brand till September 1999, the company has now introduced
three variants - Saffola Refined Kardi (Safflower) Oil, Saffola Kardi Corn Tasty
Blend and Saffola Gold. Sweekar is another national brand comprising of refined
sunflower oil, which the company is slowly defocussing.

Chart: Sales and sales growth of ROCP

40000 40.0

35000 35.0
30.0
30000
25.0
(Rs mn)

25000

(%)
20.0
20000
15.0
15000
10.0
10000 5.0
5000 -
2000 2001 2002 2003 2004 2005

Source: AC Nielsen

June 23, 2006 11

 Marico Ltd: A Safe Parachute!

Financials

Projected Income statement - Standalone

Period to FY04 FY05 FY06 FY07P FY08P
(Rs mn) (12) (12) (12) (12) (12)
Net Sales 8,473 9,421 10,449 12,938 15,581
Operating expenses (7,765) (8,583) (9,058) (11,171) (13,447)
Operating profit 708 837 1,391 1,766 2,134
Other income 44 59 37 50 60
PBIDT 753 896 1,428 1,816 2,194
Interest (8) (4) (6) (142) (76)
Depreciation (111) (116) (332) (295) (309)
Amortization 0 0 0 0 0
Profit before tax (PBT) 634 776 1,090 1,379 1,809
Tax (54) (59) (78) (186) (316)
Profit after tax (PAT) 580 718 1,011 1,193 1,492
Extraordinary / prior period items 0 21 (23) 0 0
Adjusted profit after tax (APAT) 580 738 989 1,193 1,492

Projected Balance sheet - Standalone

Period to FY04 FY05 FY06P FY07P FY08P
(Rs mn) (12) (12) (12) (12) (12)
Sources
Equity Share Capital 290 580 580 580 580
Reserves 1,509 1,605 2,186 2,886 3,754
Net Worth 1,799 2,185 2,766 3,466 4,334
Loan Funds 94 524 2,240 1,300 600
Def Tax liability 62 61 60 60 60
Total 1,956 2,770 5,067 4,826 4,994

Uses
Gross Block 1,525 1,704 4,020 4,220 4,420
Accd Depreciation (703) (813) (1,145) (1,441) (1,750)
Net Block 822 891 2,875 2,779 2,670
Capital WIP 76 117 252 130 150
Total Fixed Assets 898 1,008 3,126 2,909 2,820
Investments 144 291 205 180 220
Total Current Assets 1,893 2,628 2,956 3,237 3,715
Total Current Liabilities (979) (1,156) (1,222) (1,500) (1,760)
Net Working Capital 914 1,471 1,735 1,737 1,954
Total 1,956 2,770 5,066 4,827 4,994

June 23, 2006 12

 Marico Ltd: A Safe Parachute!

Key ratios - Standalone

Period to FY04 FY05 FY06P FY07P FY08P
(12) (12) (12) (12) (12)
Per share ratios
EPS (Rs) 20.0 12.7 17.0 20.6 25.7
Div per share 8.5 5.4 6.2 7.5 9.5
Book value per share 62.0 37.7 47.7 59.8 74.7
Valuation ratios
P/E 6.5 19.1 31.7 20.3 16.2
P/BV 2.1 6.4 11.3 6.9 5.5
EV/sales 0.4 1.5 3.2 1.9 1.6
EV/ PBIT 5.7 18.5 30.4 16.5 12.9
EV/PBIDT 4.9 16.1 23.3 13.8 11.1
Dvd Yield 6.5 2.2 1.1 1.8 2.3
Growth ratios
Sales 14.8 11.2 10.9 23.8 20.4
Operating profit 0.1 18.2 66.1 27.0 20.8
Net profit 9.3 27.3 34.0 20.7 25.0
Profitability ratios
OPM (%) 8.4 8.9 13.3 13.7 13.7
PAT % 6.8 7.8 9.5 9.2 9.6
ROCE 33.9 28.8 21.9 31.9 38.2
RONW 32.2 33.8 35.7 34.4 34.4
Liquidity ratios
Current ratio 1.9 2.3 2.5 2.5 2.5
Debtors days 14.4 13.7 13.0 13.0 13.0
Inventory days 40.8 43.6 43.5 43.0 43.0
Creditors days 32.4 35.0 35.0 35.5 35.2
Leverage ratios
Debt / Total equity 0.1 0.2 0.8 0.4 0.1
Component ratios (as % of net sales)
Raw material 66.0 63.1 54.1 54.3 54.3
Staff cost 4.9 4.5 5.9 6.0 6.0
Advertising 8.1 9.1 11.9 11.8 11.8
Contract manu. Chges 2.3 1.6 1.7 1.8 1.8
Freight, forwarding & distribution 4.0 6.0 6.2 6.3 6.3
Other expenditure 6.4 6.8 6.8 6.5 6.5
Payout ratios
Dividend Payout 48.0 47.7 41.2 41.3 41.9
Tax Payout 8.5 7.5 7.2 13.5 17.5

June 23, 2006 13

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