Innovations, Input costs positive, potential acquisitions a drag November 4, 21 Amnish Aggarwal amnishaggarwal@plindia.com +91 22 66322233 Gaurav Jogani gauravjogani@plindia.com +91 22 6632223 Rating Accumulate Price Rs399 Target Price Rs437 Implied Upside 9.% Sensex 26,3 Nifty,4 (Prices as on November 4, 21) Trading data Market Cap. (Rs bn) 27. Shares o/s (m) 644.7 3M Avg. Daily value (Rs m) 22.9 Major shareholders Promoters 9.7% Foreign 23.69% Domestic Inst. 9.27% Public & Other 7.37% Stock Performance 1M 6M 12M Absolute (.1) 2. 2.7 Relative (1.4) 6.2 33.3 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 216 11. 11.1 1.4 217 13.4 13.2.9 Price Performance (RIC:MRCO.BO,BB:MRCO IN) (Rs) 4 3 2 Nov Jan 1 Source: Bloomberg May 1 Jul 1 Sep 1 Nov 1 MRCO s Q2FY16 domestic sales continued to remain impacted by 4% volume growth in Saffola Oils portfolio while IBD was impacted by 11% sales decline in Bangladesh and 4% in Egypt. Growth outlook seems better in 2Q led by gains from 1) 6% price cut in domestic parachute portfolio 2) new launches in hair oils and Livon Rs pack 3) increased focus on Saffola Activ and Tasty blend in entry segment 4) portfolio restaging in Haircode (Egypt), X men (Vietnam) and Parachute Gold (Middle East). Copra, LLP, HDPE prices are benign and will support margins even as Rice Bran and Safflower oil prices are inching up. We estimate PAT CAGR of 19% over FY1 1 with sustained ROE of 3% and ROCE of 4%. MRCO s intent to undertake overseas acquisitions is negative in our view, given poor track record in acquisitions. Long term outlook appears steady. Maintain Accumulate. Consol volumes up 4.4%, Gross margin expands bps: Sales increased 3.%, Gross margin up bps; EBITDA grew 17.6% on 19bps margin expansion to 1.% despite increase of 29bps in adspend and 3bps in other expenses. Adj PAT increased 27.4% to Rs1.b. Domestic volumes grew.% led by 11% in Parachute rigid packs, 4% in Saffola and % in VAHO. MRCO has cut parachute portfolio prices by 6% to preserve volumes and keep off unorganised players. MRCO is focusing on Saffola Activ and Tasty to push volume growth. It has launched Parachute Advanced Gold, Advanced with Aloe Vera, Nihar Shanti Sarson and Livon which should enable pick up in volume growth and share gain. Bangladesh drags IBD performance: IBD sales increased 2% ( 2% in constant currency); EBIT increased 9.6%, margins increased 1bps. Bangladesh sales declined 11%. Price correction of % in Parachute is expected to perk up growth in 2H. MENA grew % aided by 29% growth in Middle East; Egypt is improving but de grew 4%. SE Asia sales increased 2% (% excluding disinvestment). MRCO restaged Haircode in Egypt, Parachute range in Middle East and X men deo and shampoo in Vietnam which should boost growth rates in coming quarters. Key financials (Y/e March) 2 21 216E 217E Revenues (Rs m) 46,6 7,33 61,663 7,6 Growth 2. 22.3 7.6. EBITDA (Rs m) 7,477,71,64 12,6 PAT (Rs m) 4,4,73 7,7,6 EPS (Rs) 7..9 11. 13.4 Growth 33. 1.1 23.4 21. Net DPS (Rs) 3. 2. 3. 4. Profitability & Valuation 2 21 216E 217E EBITDA margin 16. 1.2 17.2 17.9 RoE 29. 36. 34.6 34.1 RoCE 21.2 2.3 3. 3.7 EV / sales (x).6 4. 4.2 3.7 EV / EBITDA (x) 3.2 29. 24.6 2. PE (x) 3.1 44.9 36.4 29.9 P / BV (x) 1.9.1 11.4 9.2 Net dividend yield.9.6.9 1.1 Source: Company Data; PL Research Q2FY16 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q2FY16 Results (Rs m): Domestic Volumes (primary) up.% as shift in festive season and subdued monsoons impact demand Y/e March Q2FY16 Q2FY1 YoY gr. Q1FY16 H1FY16 H1FY1 YoY gr. Net Sales,4,312 3. 17,32 32,66 3,43 7. COGS 7,37 7,976 (.) 9,9 17,132 16,7 1. % of Net Sales.7.7 3. 2.4.3 Gross Profit 7,317 6,336 1.,237 1,4 13,66 13.9 % of Net Sales 49.3 44.3 46.2 47.6 44.7 Advertising & Promotion 2,176 1,67 29.9 1,97 4,11 3,96 1.4 % of Net Sales.6 11.7 11.1 12.7 11. Total Expenses 12,7 12,39 1.6,79 27,136 2,924 4.7 EBITDA 2,297 1,93 17.6 3,23, 4,619 2.2 Margins 1. 13.6 1.2 17. 1.1 Depreciation 239 2 16.6 26 44 49 9. EBIT 2, 1,74 17.7 3,47, 4,2 21.2 Interest 36 1 (3.) 44 122 (34.) Other Income 2 117 21.6 317 49 3 3. PBT 2,164 1,13 19.4 3,32,44 4,39 2. Tax 624 99 4.1 94 1,2 1,27 19.6 Effective tax rate 2. 33. 27.2 27.9 29.1 Minority Interest 33 31 6. 37 7 76 (7.) Adjusted PAT 1,7 1,13 27.4 2,37 3,6 3,3 2. Extraordinary Reported Profit 1,7 1,13 27.4 2,37 3,6 3,3 2. Exhibit 2: Marico has registered market share gains in Shanti Amla and Saffola in Q2FY16 Market Share 1QFY1 2QFY1 3QFY1 4QFY1 1QFY16 2QFY16 Coconut Oil 6 7 7 7 7 7 Value added Hair Oil 2 2 2 29 29 3 Shanti Amla 3 31 31 33 34 36 Saffola 6 7 9 Saffola Oats 17 17 19 21 22 24 Hair Creams/Gel 42 43 43 44 47 49 Parachute Body Lotion 6 6 6 6 6 6 Deo 4 4 4 3 3 Livon & Silk and Shine 2 2 2 2 2 Parachute Bangladesh 4 3 2 1 1 1 Hair Oils 1 17 16 16 1 16 Hair Code Dye 36 36 41 37 42 NA X Men Vietnam 3 3 3 39 39 3 Hair Code and Fiancée 6 63 64 9 9 November 4, 21 2
Exhibit 3: Marico Consolidated Segmental: Domestic sales up 4.4%, margins up 73bps; IBD sales up 2%, margins up 1bps (Rs m) 2QFY1 3QFY1 4QFY1 1QFY16 2QFY16 Net Sales,3,2 12,26 17,3,6 Domestic,79 11,4 9,49,2 11,27 International 3,2 3,12 2,77 3, 3,9 Sales Growth % 2. 2.9.4 4.3 3. Domestic 34.2 26.4 16.9 11.6 4.4 International 12.1 4.3 6. 3. 2. EBIT 2,7 2,4 1,97 3,7 2,4 Domestic 1, 2, 1,6 3, 1, International 2 47 37 7 7 EBIT Growth %.4 2.4 1.7 23.1 1.4 Domestic. 2.6 23.1 29.3 21.3 International 1.6 2.2 2. 3.6 9.6 EBIT Margins %. 17.1 16.1 2. 16. Domestic.4 17.6 16.9 21. 16.7 International. 1.1 13.4 16.1 1.9 Capital Employed,97,1,73,7 13,7 Domestic,23 7,2 7, 7,96 6,99 International 6,74 6,94 7,22 6,9 6,72 International Sales Bangladesh (4%) 17. 1. (1.) 2. (11.) MENA (1%) 24. 39. 3. 4.. South Africa 12. 9.. 3.. SE Asia (26%) 4. 2. 2. (.) 2. Exhibit 4: Marico Consolidated Sales Break up % of incremental growth in Bangladesh is expected to be contributed by noncoconut portfolio. Middle East business has positive momentum in MENA region. Vietnam performance impacted SE Asia business, headwinds are abating and new management transition is expected to have positive impact, going ahead Bangladesh 11% Personal care and Foods % Saffola 16% SE Asia 7% MENA 7% Hair Oils 21% Parachute 33% November 4, 21 3
Exhibit : Parachute: 11% Volume growth led by tactical promotions 2 1 1 13 11 11 9 6 6 7 9 4 1 2 Mar Sep Sep Sep 1 Exhibit 6: Saffola: regional pricing, lower end brands to spur growth 2 1 13 Mar 1 1 Sep 13 1 11 1 3 12 6 7 4 11 9 Sep 3 3 4 4 Sep 1 Exhibit 7: Hair Oils: Volumes impacted due to shift in festive season 3 31 32 3 3 2727 2 24 2 21 2 2 26217. 16 1 11 13 1 Mar Sep Sep Sep 1 Exhibit : Domestic FMCG: Saffola drags overall volume growth 1 16 12 6 4 2 16 11 Mar Sep 13 17 16 9 6 7 7 6 6 4 3 Sep Sep 1 Exhibit 9: Youth brands: Gels grow in Double digits for 2 consecutive quarters, Livon impacted by counterfeits, Deo s continue to lag 6 4 46 43 393 42 4 39 4 4 2 41 (Rs m) 3 2 1QFY13 2QFY13 3QFY13 4QFY13 1QFY 2QFY 3QFY 4QFY 1QFY1 2QFY1 3QFY1 4QFY1 1QFY16 2QFY16 November 4, 21 4
Exhibit : Saffola: Differential pricing strategy for different regions Exhibit 11: Hair Oils: rising focus on value added variants (Rs / Liter) 2 19 17 1 13 1 9 Saffola Tasty Blend Saffola Kardi Saffola Gold Oct 13 Dec 13 Feb Apr Jun Aug Oct Dec Feb 1 Apr 1 Jun 1 Aug 1 1 1 13 9 7 6 4 Parachute Advanced Shanti Amla Parachute Jasmine Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Dec 13 Feb Apr Jun Aug Oct Dec Feb 1 Apr 1 Jun 1 Aug 1 7 6 Exhibit 12: Copra: Prices down 1% QoQ and 3.% YoY Exhibit 13: Saffola: Kardi Oil and Sunflower prices up 12% and % 12, 11,, 9,, 7, 6,, 4, 3, Nov 13 Feb 112 93 May 117 Aug 44 Nov 946 742 66 Feb 1 May 1 (Rs / Kg) 16 12 6 4 2 Sunflower Oil Kardi Oil Rice Bran Oil 99 993 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q 2Q 3Q 4Q 1Q1 2Q1 3Q1 4Q1 1Q16 2Q16 64 9 November 4, 21
Income Statement (Rs m) Y/e March 2 21 216E 217E Net Revenue 46,6 7,33 61,663 7,6 Raw Material Expenses 23,992 31,19 31,64 36,36 Gross Profit 22,74 26,139 29,799 33,774 Employee Cost 2, 3,21 3,1 3,99 Other Expenses 12,47,17 1,61 17,134 EBITDA 7,477,71,64 12,6 Depr. & Amortization 769 44 97 961 Net Interest 34 229 229 24 Other Income 2 9 1,119 Profit before Tax 6,946,217,2 12,63 Total Tax 1,9 2,36 3,6 3,44 Profit after Tax,41,49 7,21,79 Ex Od items / Min. Int. 17 1 131 11 Adj. PAT 4,4,73 7,7,6 Avg. Shares O/S (m) 644.9 64. 644.6 644.6 EPS (Rs.) 7..9 11. 13.4 Cash Flow Abstract (Rs m) Y/e March 2 21 216E 217E C/F from Operations 7,66 4,39,3 9,24 C/F from Investing (1,2) 1,6 (4,1) (4,732) C/F from Financing (,9) (6,137) (3,72) (4,31) Inc. / Dec. in Cash 94 (1,92) 363 17 Opening Cash 49 1,392 299 663 Closing Cash 1,392 299 663 2 FCFF 1,32,13,67,9 FCFE 13,431 2,7,92 7,637 Key Financial Metrics Y/e March 2 21 216E 217E Growth Revenue 2. 22.3 7.6. EBITDA 19. 16.4 21.9 19.3 PAT 33. 1.1 23.3 21. EPS 33. 1.1 23.4 21. Profitability EBITDA Margin 16. 1.2 17.2 17.9 PAT Margin.4. 11. 12.2 RoCE 21.2 2.3 3. 3.7 RoE 29. 36. 34.6 34.1 Balance Sheet Net Debt : Equity.4.1.1.1 Net Wrkng Cap. (days) Valuation PER (x) 3.1 44.9 36.4 29.9 P / B (x) 1.9.1 11.4 9.2 EV / EBITDA (x) 3.2 29. 24.6 2. EV / Sales (x).6 4. 4.2 3.7 Earnings Quality Eff. Tax Rate 27.4 2. 3. 3. Other Inc / PBT.4 7.2 7.9.9 Eff. Depr. Rate. 9.7 9.2 9.2 FCFE / PAT 276.7 3.9 4.6.7. Balance Sheet Abstract (Rs m) Y/e March 2 21 216E 217E Shareholder's Funds 13,66 1,24 22,646 27,61 Total Debt 6,79 3,342 3,637 3,16 Other Liabilities 3 137 26 419 Total Liabilities 2,762 21,726 26,1 31,44 Net Fixed Assets 6,37,4,73,439 Goodwill 2,43 4,91 4,92 4,92 Investments,7 2,3 7,1 11,76 Net Current Assets 6,,177 7,996,949 Cash & Equivalents 1,392 2,49 663 21 Other Current Assets 13,3 1,76 17,661 2,69 Current Liabilities,791 9,44,32 11,941 Other Assets (96) (79) 127 379 Total Assets 2,762 21,316 26,1 31,44 Quarterly Financials (Rs m) Y/e March Q3FY1 Q4FY1 Q1FY16 Q2FY16 Net Revenue,24 12,263 17,32,4 EBITDA 2,369 1,713 3,23 2,297 % of revenue 16.3. 1.2 1. Depr. & Amortization 23 2 26 239 Net Interest () (132) (273) (7) Other Income 1 1 317 2 Profit before Tax 2, 1,644 3,32 2,164 Total Tax 62 2 94 624 Profit after Tax 1,99 1, 2,37 1,7 Adj. PAT 1,99 1, 2,37 1,7 Key Operating Metrics Y/e March 2 21 216E 217E Parachute Volume Growth % 2.. 6.. Saffola Volume Growth % 9. 6. 7.. Hair oil Volume Growth % 11.. 11. 12. Domestic Volume Growth % Gross Margin % 4. 4.6 4.3 47. Ad Spends % 12. 11.3 12. 11.7. November 4, 21 6
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