Marico | 2QFY2012 Result Update

November 8, 2011

Marico
Performance Highlights
(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
2QFY11 779 99 12.7 72 % yoy 25.1 17.5 (77bp) 9.4 Angel Est 984 116 11.8 73 % Diff (1) 0.2 13bp 8

`149 -

2QFY12 974 117 12.0 78

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

FMCG 9,127 0.5 173/110 175,629 1 18,432 5,547 MRCO.BO MRCO@IN

Marico posted a strong performance for 2QFY2012. Overall volume growth for the quarter stood at ~14%. Operating margin for the quarter contracted by 77bp yoy. Earnings for the quarter grew modestly by 9.4% yoy, impacted by higher tax rate, up by 573bp yoy. We maintain our Neutral view on the stock. Key highlights during the quarter: Volume growth in the consumer products business in India stood at ~14%, with Parachute reporting ~6% yoy volume growth and Saffola growing by ~11% yoy. The hair oil category with the launch of new variants, such as Parachute Advanced Ayurvedic hot oil, Parachute Advanced Ayurvedic cooling oil and Parachute Advanced Ayurvedic hair oil, performed well and gained market share. The international business grew by 19% yoy, where organic growth stood at 14% yoy and inorganic growth came in at 19% yoy (inorganic growth was led by Vietnam). During the quarter, Marico also started showing increased focus on rural sales. Outlook and valuation: Maricos volume growth in its key product categories has been impressive despite the price hikes. We have factored in a ~20% CAGR over FY2011-13E in the companys focus brands and expect the international business to grow strongly at a ~30% CAGR over FY2011-13E, with the recent acquisition in Vietnam contributing ~5% to the top line in FY2012E and FY2013E. At the CMP of `149, the stock is trading at 23.4x FY2013E EPS. We believe the stock is fairly priced and, hence, recommend Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 62.9 6.7 26.3 4.1

Abs. (%) Sensex Marico

3m (5.2)

1yr 2.0

3yr 29.1

20.9 32.51 196.8

Key financials
Y/E March (` cr) Net Sales % chg Net Profit (Adj) % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 2,661 11.4 241.5 18.5 14.1 3.9 37.8 13.8 43.6 32.5 3.6 25.2

FY2011 3,128 17.6 237.5 (1.6) 13.1 3.9 38.4 10.0 36.5 24.0 3.1 23.6

FY2012E 3,743 19.7 308.3 29.8 13.0 5.0 29.6 7.6 30.2 23.7 2.6 19.6

FY2013E 4,300 14.9 389.3 26.3 13.4 6.3 23.4 6.1 28.8 26.6 2.3 16.1

Sreekanth P.V.S
022 3935 7800 Ext: 6841

sreekanth.s@angelbroking.com

Please refer to important disclosures at the end of this report

Marico | 2QFY2012 Result Update

Exhibit 1: Quarterly performance

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation & Amortisation Other Income PBT (excl. Extr Items) Extr Income/(Expense) PBT (incl. Extr Items) (% of Sales) Provision for Taxation (% of PBT) Minority Interest Reported PAT PATM Equity shares (cr) Reported EPS (`) Adjusted PAT
Source: Company, Angel Research

2QFY12 2QFY11 % chg 1HFY2012 1HFY2011 % chg 974 533 54.7 73 7.4 94 9.7 158 16.2 858 117 12.0 9 18 11 100 100 10.3 21 20.4 2 78 8 61 1.3 78 779 388 49.8 58 7.5 95 12.2 138 17.8 680 99 12.7 6 14 7 86 86 11.0 13 14.7 2 72 9 61 1.2 72 9.4 9.4 9.4 62.4 16.9 40.8 26.9 48.9 16.9 26.2 17.5 14.2 (0.8) 24.6 25.1 37.4 2,023 1,128 55.7 143 7.1 196 9.7 314 15.5 1,781 242 12.0 19 35 20 208 208 10.3 42 20.0 3 163 8 61 2.7 163 1,566 791 50.5 112 7.2 189 12.0 269 17.2 1,361 205 13.1 13 26 11 177 177 11.3 29 16.3 3 145 9 61 2.4 145 12.4 12.4 12.4 44.3 17.6 39.3 33.1 71.0 17.6 30.8 18.0 16.7 4.1 27.5 29.2 42.5

Double-digit volume growth in Parachute and Saffola

For 2QFY2012, Marico reported top-line growth of 25.1% yoy to `974cr. Growth was driven by a mix of value and volume growth, with core brands Parachute (Rigids) and Saffola posting volume growth of 10% and ~11%, respectively, for the quarter. The companys volume market share in the branded coconut oil segment in India stood at 53.3% as of September 2011. In the hair oil category, the company launched Parachute Advanced Ayurvedic hot oil, Parachute Advanced Ayurvedic cooling oil and Parachute Advanced Ayurvedic hair oil, all of which performed well and gained market share during the quarter. During the quarter, Saffola grew by ~11% yoy in volume. The brand, which was earlier in the healthy and premium edible oil category, has been extended to the premium variety of rice under the brand Saffola Arise. It has also ventured into the breakfast cereal category with oats under the brand name Saffola Oats. Both the products have generated good response in the market. The company plans to enter the healthy food segment in the near future. The companys volume market share stood at 54.8% as of September 2011.

November 8, 2011

Marico | 2QFY2012 Result Update

Exhibit 2: Robust top line backed by organic and inorganic growth

1,200 1,000 800
(` cr)

35.0 30.0 25.0 20.0 15.0 10.0 5.0 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 (yoy %)

600 400 200 -

Top-line (LHS)
Source: Company, Angel research

yoy growth (RHS)

Exhibit 3: Parachute sales volume steady...

16 14 12 10 10 8 6 5 5 10 10 10 14

Exhibit 4: Saffolas growth remains strong

25 20 15
(%)

22 18 13 18 18 15 13 11 15

(%)

8 6 4 2 -

10 5 -

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

Source: Company, Angel Research

Source: Company, Angel Research

Earnings growth affected by higher tax rate

In terms of earnings, Marico posted 9.4% yoy growth to `78cr (`72cr), impacted by higher tax rate. Tax rate for the quarter increased by 573bp yoy. The quarter under review does not include any provision for excise duty on coconut oil packs sold in packs up to 200ml.

November 8, 2011

2Q12

Marico | 2QFY2012 Result Update

OPM down 77bp yoy as GM contracts by 487bp yoy

Marico again witnessed a sharp contraction in its gross margin by 487bp yoy, as copra, rice bran oil, safflower oil and HDPE prices trended high. Hence, the companys OPM declined by 77bp yoy. The company managed to curtail the slippage in OPM by reducing ad spends and other expenditure.

Exhibit 5: Earnings growth moderates

80 70 60 50
(` cr)

Exhibit 6: OPM contracts by 77bp yoy

40.0 20.0 (%)

60.0 50.0 40.0

( %)

52.9

52.5

56.1

50.2

50.2

47.3

47.0

43.3

45.3

40 30 20 10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

(20.0) (40.0) (60.0) (80.0) (100.0) (120.0)

30.0 20.0 10.0 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

13.7

14.8

14.1

12.7

12.7

12.2

10.5

11.9

12.0

(10)

PAT (LHS)

yoy growth (RHS)

OPM

Gross margin

Source: Company, Angel Research

Source: Company, Angel Research

International business registers strong 19% yoy growth

Maricos international FMCG business grew strongly by 19% yoy. The business now constitutes around 23% of the groups turnover. Revenue of the business stood at `241cr for the quarter. In Bangladesh, Parachute commanded a volume share of ~69%. Hair Code hair dye reported a market share of ~29%. MENA region witnessed a better quarter compared to the last quarter, though uncertainties still prevail. The MENA region contributes ~5% to the companys revenue. In Egypt, the combined market share of Fiancee and Hair Code stood at ~57%. South Africa registered double-digit growth during the quarter. Caicil continued to be the market leader in the kids hair care market. Southeast Asia, including Vietnam, witnessed high inflation of 11%. Code 10 and X-Men have been performing well in Southeast Asia.

Kaya Skin Care Solutions

During the quarter, Kaya reported revenue of `66cr. Same store sales in India and Middle East grew by 16% yoy each. Total revenue growth for Kaya in 2QFY2012 stood at 7% yoy, with loss of `7.5cr. The company intends to launch Derma Rx products in the Middle East in 4QFY2012.

November 8, 2011

Marico | 2QFY2012 Result Update

Investment arguments
Impressive volume growth across categories/strong pricing power: We expect Marico to post healthy volume in its core brands in FY2012E. The company has not witnessed significant slowdown in volume growth despite steep price hikes. Over the past few months, raw-material prices have been softening; so, we do not expect any steep price hikes further. Although margins will not improve significantly due to the softening of raw-material prices, we believe they will stabilize going forward. International business gaining momentum: The international business now contributes ~23% to the companys top line. Marico maintains its leadership position in different categories in different regions. The recently acquired ICP in Vietnam is expected to contribute ~5% to the companys top line. We believe the international business will grow at a ~31% CAGR over FY2011-13E.

Outlook and valuation

Maricos volume growth in its key product categories has been impressive despite the price hikes. We have factored in a ~20% CAGR over FY2011-13E in the companys focus brands and expect the international business to grow strongly at a ~30% CAGR over FY2011-13E, with the recent acquisition in Vietnam contributing ~5% to the top line in FY2012E and FY2013E. At the CMP of `149, the stock is trading at 23.4x FY2013E EPS. We believe the stock is fairly priced and, hence, recommend a Neutral rating on the stock. Key risks to our recommendation: 1) A sharp rise in key raw-material prices, which will drag down the companys margin; 2) lower demand in coconut hair oil due to price hikes; 3) increased competitive intensity in the core categories, 4) international business not gaining momentum as per expectations.

Exhibit 7: Change in estimates

Old estimates (` cr) Revenue OPM (%) EPS (`) FY12E 3,643 13.4 5.1 FY13E 4,185 13.7 6.3 New estimates FY12E 3,743 13.0 5.0 FY13E 4,300 13.4 6.3 % chg FY12E 2.7 (45bp) (0.8) FY13E 2.7 (30bp) 0.7

Source: Company, Angel Research

November 8, 2011

Marico | 2QFY2012 Result Update

Exhibit 8: Peer valuation

Company Asian Paints Britannia Colgate Dabur GSKCHL^ GCPL HUL ITC Marico Nestle^ Reco
Neutral Neutral Neutral Buy Neutral Accumulate Neutral Neutral Neutral Neutral

Mcap (` cr)
30,412 5,638 14,532 17,320 10,781 13,421 83,003 162,539 9,127 42,092

CMP (`)
3,171 472 1,069 100 2,563 415 380 210 149 4,366

TP (`)
3,157 495 869 115 2,295 457 320 219 151 3,603

Upside (%)
16 10 -

P/E (x) FY12E FY13E

30.9 30.6 33.1 24.7 31.0 25.1 32.6 28.2 29.6 43.2 25.1 21.0 28.3 21.6 26.1 19.3 28.6 23.7 23.4 36.4

EV/Sales (x) FY12E FY13E

3.3 1.1 5.5 3.4 3.6 3.3 3.6 6.3 2.6 5.7 2.7 0.9 4.7 3.0 3.0 2.7 3.2 5.2 2.3 5.0

RoE (%) FY12E FY13E

39.6 37.8 111.7 44.9 32.6 36.6 87.5 32.7 30.2 91.1 38.3 46.0 108.0 41.6 31.8 29.4 85.3 31.5 28.8 72.9

CAGR # Sales PAT

17.3 17.3 14.9 20.5 20.1 22.9 12.7 17.6 17.2 16.1 19.8 36.0 12.9 18.8 23.9 20.2 17.1 17.4 28.0 18.9

Source: Company, Angel Research; Note: ^December year end

Exhibit 9: Angel vs. consensus estimates

Top-line (` cr) Angel estimates Consensus Diff (%)
Source: Company, Angel Research

FY2012E

FY2013E

EPS (`) Angel estimates Consensus Diff (%)

FY2012E

FY2013E

3,743 3,873 (3.3)

4,300 4,507 (4.6)

5.0 5.2 (3.5)

6.3 6.6 (4.0)

Exhibit 10: Absolute returns of Marico vs. Sensex

130% 120% 110% 100% 90% 80% 70% 60%
Dec-10 Mar-11 Aug-11 Apr-11 Jul-11 Feb-11 Oct-11 Nov-10 May-11 Nov-11 Sep-11 Jan-11 Jun-11

Exhibit 11: One-year forward P/E band

200 150
Share Price (`)

100 50 Dec-05 Dec-07 Dec-09 Apr-05 Apr-07 Apr-09 Aug-06 Aug-08 Aug-10
30x

Sensex

Marico

15x

20x

25x

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 12: One-yr forward P/E chart

35.0 30.0 25.0 20.0 15.0 10.0 5.0 -

Exhibit 13: One-yr forward Premium v/s Sensex chart

120% 100% 80% 60% 40% 20% 0% -20% -40%

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Oct-11

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Apr-11

Source: Company, Angel Research

Source: Company, Angel Research

November 8, 2011

Aug-11

Apr-11

Marico | 2QFY2012 Result Update

Profit and loss statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Total operating income % chg Total Expenditure Cost of Materials Advertising Exp Personnel Others EBITDA % chg (% of Net Sales) Dep.& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra Exp/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earn of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 1,907 2 1,905 1,905 22.4 1,659 981 244 127 307 246 24.0 12.9 31 215 47.1 11.3 31 5 2.7 190 39.7 (11) 201 36 18.9 165 165 154 55.7 8.1 2.5 2.5 55.7 2,390 2 2,388 2,388 25.4 2,084 1,278 243 166 398 304 23.4 12.7 36 268 24.5 11.2 36 12 5.0 245 28.8 15 230 41 16.7 189 (0) 189 204 32.3 8.5 3.3 3.3 32.3 2,662 1 2,661 2,661 11.4 2,286 1,262 351 193 480 375 23.4 14.1 60 315 17.5 11.8 26 18 5.9 308 25.7 10 298 64 20.9 234 2 232 241 18.5 9.1 4.0 3.9 18.5 FY2011 FY2012E FY2013E 3,129 1 3,128 3,128 17.6 2,719 1,618 346 230 524 410 9.2 13.1 71 339 7.6 10.8 39 28 8.5 328 6.5 (49) 376 85 25.9 291 5 286 238 (1.6) 7.6 3.9 3.9 (1.6) 3,645 2 3,643 3,643 16.5 3,155 1,860 423 262 610 488 19.2 13.4 79 409 20.6 11.2 45 33 8.2 397 21.1 (10) 407 79 20.0 327 7 321 311 30.9 8.5 5.1 5.1 30.9 4,187 2 4,185 4,185 14.9 3,612 2,139 473 301 699 573 17.4 13.7 83 490 19.9 11.7 41 43 8.8 493 24.2 493 99 20.0 394 8 387 387 24.4 9.2 6.3 6.3 24.4

November 8, 2011

Marico | 2QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Deferred Tax Asset Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 315 163 151 65 126 98 528 75 106 347 295 233 673 414 203 210 58 128 12 64 670 90 130 450 314 355 828 468 242 226 113 146 83 62 897 111 190 596 414 483 1,112 640 337 304 65 519 89 30 1,220 213 218 789 518 703 1,709 696 408 288 104 524 89 30 1,272 139 255 878 588 684 1,720 735 496 239 147 529 89 30 1,652 328 293 1,031 702 950 1,983 61 254 315 358 673 61 393 454 374 828 61 593 654 13 446 1,112 61 854 915 22 772 1,709 61 1,137 1,198 22 500 1,720 61 1,445 1,506 22 455 1,983 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Cash flow statement (Consolidated) Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Others Cash Flow from Oper. (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Invest. Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Fin. Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 201 31 (89) 28 36 19 153 (155) (155) 107 45 28 35 32 43 75 230 36 (75) 30 41 2 182 (95) (12) (107) 16 47 30 (60) 15 75 90 298 60 (135) 15 64 39 212 (149) (71) (219) 18 72 47 15 28 21 90 111 376 71 (111) 23 85 49 323 (497) (9) (506) 29 326 47 23 284 102 111 213 407 79 (89) 25 79 47 389 (101) (19) (120) (272) 47 25 (344) (75) 213 139 493 83 (92) 11 99 17 414 (86) (21) (108) (45) 60 11 (117) 189 139 328

November 8, 2011

Marico | 2QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Net working capital (days) 5.0 50 17 49 30 4.9 52 17 42 41 4.6 61 21 46 51 3.5 70 22 48 57 3.6 65 23 52 55 4.6 66 24 53 54 38.6 54.2 60.7 35.7 49.6 53.0 32.5 43.0 43.6 24.0 37.0 36.5 23.9 40.2 30.4 26.5 44.9 28.6 2.5 2.5 3.0 0.7 5.2 3.3 3.3 3.9 0.7 7.4 4.0 3.9 4.9 0.7 10.7 3.9 3.9 5.8 0.7 14.9 5.1 5.1 6.5 0.8 19.5 6.3 6.3 7.6 1.1 24.5 59.3 48.9 28.8 0.4 5.1 38.2 14.0 44.8 37.8 19.9 0.4 4.1 31.0 11.4 37.8 30.0 13.8 0.4 3.6 25.2 8.5 38.4 25.5 10.0 0.4 3.1 23.6 5.7 29.4 22.8 7.6 0.6 2.7 19.4 5.5 23.6 19.4 6.1 0.7 2.3 16.1 4.7 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

November 8, 2011

Marico | 2QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Marico No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 8, 2011

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