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Marico | 3QFY2013 Result Update

February 5, 2013

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

NEUTRAL
CMP Target Price
Investment Period
3QFY12 1,058 122 11.5 84 % yoy 10.0 33.1 241bp 21.6 2QFY13 1,156 148 12.8 86 % qoq 0.7 9.7 114bp 19.1

`220 -

3QFY13 1,164 162 13.9 102

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 14,161 429 0.5 250/155 33,921 1 19,660 5,957 MRCO.BO MRCO@IN

For 3QFY2013, Marico posted a 10% yoy growth in its consolidated net sales to `1,164cr, aided by a 9% volume growth. The OPM rose by 241bp on a yoy basis to 13.9% aided by a 353bp yoy expansion in gross margins. The net profit rose by 21.6% yoy to `102cr, aided by superior operating performance. Key highlights during the quarter: The domestic consumer business posted value and volume growth of 16% yoy and 15% yoy respectively. The organic domestic consumer business volume growth was 9%. The international business posted a flat performance on the top-line front due to challenging business environment in some of the countries in which the company has operations. On a constant currency basis the company posted a de-growth of 3% yoy on the top-line front due to de-growth in Middle East and strikes in Bangaladesh. The OPM rose by 241bp on a yoy basis to 13.9% aided by 353bp yoy expansion in gross margins due to lower copra prices. Average copra prices in 3QFY2013 were about 23% lower on a yoy basis. The companys advertising expenses (as a % of sales) went up by 90bp on a yoy basis, which offset the decline in copra prices to some extent. Outlook and valuation: Going ahead, we expect Marico to post a healthy growth in the domestic business aided by its strong brands. The recent acquisitions made by the company too are expected to fuel growth in the future. At the current market price, the stock is trading at 28.1x FY2014E EPS. We believe the stock is fairly priced and hence, recommend a Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 59.7 2.3 31.3 6.7

Abs. (%) Sensex MRCO

3m 4.8 4.2

1yr 11.7

3yr 24.5

35.0 122.1

Key financials (Consolidated)


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

FY2011 3,135 17.8 238 (1.6) 13.3 3.9 56.9 14.7 36.5 24.9 4.7 35.2

FY2012 4,008 27.9 319 34.4 12.1 5.2 42.3 11.8 30.8 23.0 3.7 30.5

FY2013E 4,747 18.4 409 28.1 13.6 6.3 34.6 7.1 26.0 23.2 3.1 22.7

FY2014E 5,402 13.8 504 23.4 13.6 7.8 28.1 5.8 22.6 21.4 2.7 19.5

V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Marico | 3QFY2013 Result Update

Exhibit 1: Quarterly Performance (Consolidated)


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

3QFY13 1,164 559 48.0 90 7.8 158 13.6 195 16.8 1,002 162 13.9 15 20 13 141 141 12.1 36 25.6 2 102 9 64 1.6 102

3QFY12 1,058 545 51.5 81 7.6 134 12.7 176 16.7 936 122 11.5 8 19 9 104 104 9.8 18 17.1 2 84 8 61 1.4 84

% chg 10.0 2.5 11.9 17.8 10.7 7.0 33.1 77.9 3.5 37.6 35.3 35.3 102.3

2QFY12 1,156 561 48.5 97 8.4 159 13.7 192 16.6 1,008 148 12.8 15 22 8 118 118 10.2 29 24.8 3

% chg 0.7 (0.3) (6.6) (0.5) 1.4 (0.6) 9.7 0.6 (13.2) 69.4 19.0 19.0 22.9

9MFY2013 3,587 1,761 49.1 282 7.9 472 13.2 578 16.1 3,093 494 13.8 46 61 38 425 425 11.8 106 24.9 7

9MFY2012 3,059 1,678 54.9 224 7.3 313 10.2 479 15.7 2,694 365 11.9 31 53 32 313 313 10.2 59 19.0 5 248 8 61 4.0 248

% chg 17.3 4.9 26.0 51.0 20.7 14.8 35.4 48.6 14.6 17.1 35.7 35.7 77.9

21.6

86 7 64

19.1

312 9 64

25.6

16.0 21.6

1.3 86

19.1 19.1

4.8 312

19.8 25.6

Exhibit 2: Actual vs Angel estimates


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

Actual 1,164 162 13.9 102

Angel Est 1,283 192 15.0 130

% yoy (9.2) (15.5) (103) (21.1)

February 5, 2013

Marico | 3QFY2013 Result Update

Exhibit 3: Segmental performance (Consolidated)


Y/E Mar (` cr) Total revenue a) Consumer Products 1) Domestic 2) International b) Skin Care Total PBIT a) Consumer Products 1) Domestic 2) International b) Skin Care PBIT Margin (%) a) Consumer Products 1) Domestic 2) International b) Skin Care
Source: Company, Angel Research

3QFY2013 1,168 1,089 828 261 79 172 168 145 23 4 14.8 15.5 17.5 9.0 5.0

3QFY2012 1,052 977 719 259 75 125 140 116 24 (15) 11.9 14.3 16.2 9.2 (19.9)

% chg 11.0 11.4 15.2 1 5 37.8 20.3 24.7 (1.1)

2QFY2013 1,159 1,067 792 275 92 152 147 125 22 6 13.2 13.7 15.8 8.0 6.2

% chg 0.8 2.1 4.6 (5) (14) 13.0 14.7 16.1 7.1

Double-digit top-line growth continues


For 3QFY2013, Marico posted a 10.0% yoy growth in its consolidated net sales to `1,164cr. Volume growth for the company stood at 9%. The Indian consumer products business posted a growth of 16% yoy, with volume growth coming at 15%. Organic volume growth (adjusted for the acquired personal care business of Paras, consisting of brands such as Set Wet, Zatak and Livon) stood at 9% yoy. The company continues to maintain its leadership in the coconut oil (Parachute and Nihar), premium refined oil (Saffola) and hair oil (Parachute Advanced and Nihar) categories.

The international business posted a flat performance on the top-line front due to challenging business environment in some of the countries in which the company has operations. On a constant currency basis the company posted a de-growth of 3% yoy on the top-line front due to de-growth in the Middle East and strikes in Bangaladesh. However, the companys Egypt business grew by 26% yoy. The South Africa and South East Asia businesses too posted growths of 7% and 14% respectively.
During the quarter, Kaya reported a turnover of `79cr. Same-store sales in India and Middle East grew by 4% yoy. Kaya reported an EBIT of `4cr for the quarter.

February 5, 2013

Marico | 3QFY2013 Result Update

Exhibit 4: Top-line growth at 10% yoy


1,400 1,200 1,000 (` cr) 800 600 400 1,041 1,058 1,267 1,156 1,164 818 747 974 918 200 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 22.1 24.1 25.1 32.3 29.4 22.8 21.7 18.6 10.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 (yoy %)

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

yoy growth (RHS)

Exhibit 5: Parachute records 6% volume growth


20 18 16 14 12 (%) 10 8 6 4 2 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13

Exhibit 6: Saffola volume growth slips further to 4%


16 14 13 11 15 15 15 12

18 13 10 5 5 6 11
(%)

12 10

9 6

8 6 4 2 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 3

6 4

2Q13

Source: Company, Angel Research

Source: Company, Angel Research

OPM up 241bp yoy, led by 353bp improvement in gross margin


Maricos OPM for the quarter rose by 241bp on a yoy basis to 13.9% aided by 353bp yoy expansion in gross margin due to lower copra prices. Average copra prices in 3QFY2013 were about 23% lower on a yoy basis. However, prices of some other raw materials such as kardi oil and sunflower oil went up on a yoy basis. The companys advertising expenses (as a % of sales) went up by 90bp on a yoy basis, which offset the decline in copra prices to some extent.

February 5, 2013

3Q13

Marico | 3QFY2013 Result Update

Exhibit 7: Gross and operating margins


60.0 50.0 40.0

Exhibit 8: Earnings performance


52.0 49.4 51.5
140 120 100 80

47.3 47.0

42.8

45.3

48.5

53.5

45.7 11.8 15.3 9.4 21.0 (2.7) 9.7 21.6

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

(%)

(` cr)

30.0 20.0 10.0 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13

60 40 124 70 57 59 84 71 102 3Q13

12.2 10.5 12.0 12.0 11.5 12.0 14.6 12.8 13.9

3Q11 (20)

(106.9)
4Q11 (4)

1Q12

2Q12

3Q12

4Q12

1Q13

OPM

Gross margin

PAT (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Investment arguments
Impressive volume growth across categories/strong pricing power: Marico has not witnessed any significant fall in volume growth despite the slowdown in consumption witnessed in the economy. Over the past few quarters, raw-material prices have been softening; so, we do not expect any steep price hikes further. Going ahead, we expect the company to post a margin expansion over FY2012-14 due to the softening raw material prices. International business to bounce back going ahead: The international business now contributes ~24% to the companys top-line. Marico maintains its leadership position in different categories in different regions. We expect the companys international business to post better performance going ahead due to signs of improvement seen in the macro-environment in the international markets.

Outlook and valuation


Going ahead, we expect Marico to post a healthy growth in its domestic business aided by the strong brands. The recent acquisitions made by the company too are expected to contribute towards growth in future. At the current market price, the stock is trading at 28.1x FY2014E EPS. We believe the stock is fairly priced and hence, recommend a Neutral rating on the stock.

February 5, 2013

2Q13

86

20

Marico | 3QFY2013 Result Update

Exhibit 9: One-year forward P/E chart


50.0 45.0 40.0 35.0 30.0 (x) 25.0 20.0 15.0 10.0 5.0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

Source: Company, Angel Research, Note: Blue line indicates 5-year average

Exhibit 10: Peer valuation


Company Asian Paints Britannia Colgate Dabur India Godrej Con GSK Con* HUL ITC Marico Nestle* TGBL Reco. Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr) 44,453 5,585 18,430 23,156 25,330 15,731 99,926 236,155 13,506 45,591 8,750
#

CMP (`) 4,634 468 1,355 133 744 3,741 462 302 220 4,728 142

TP (`) -

Upside (%) 25 -

P/E (x) FY13E 37.9 25.6 35.3 29.5 35.8 37.0 30.6 32.2 34.6 41.9 20.6 FY14E 31.5 19.0 30.1 24.3 27.5 31.6 27.3 27.2 28.1 33.2 17.4

EV/Sales (x) FY13E 3.8 0.9 5.7 3.7 4.2 4.7 3.7 7.8 3.1 5.3 1.1 FY14E 3.2 0.7 4.9 3.2 3.4 3.9 3.2 6.7 2.7 4.4 1.0

RoE (%) FY13E 36.4 39.1 104.6 43.4 23.7 36.3 84.5 35.1 26.0 71.2 8.9 FY14E 35.0 42.7 97.0 44.0 26.3 31.9 75.8 35.1 22.6 60.3 9.8

CAGR # Sales 17.6 15.3 15.4 16.6 26.3 16.1 15.5 17.4 16.1 16.0 10.2 PAT 19.4 25.6 17.1 21.6 29.9 18.3 19.3 18.7 25.7 16.1 18.8

Source: Company, Angel Research; Note: Denotes CAGR for FY2012-14E;*December year ending

Company Background
Marico is one of India's leading FMCG companies, offering products in the beauty and wellness segment. The company is present in over 25 countries across Asia and the Africa. The company offers products in the hair care, skin care and edible oils segments. Marico's product portfolio includes brands such as Parachute, Saffola, Hair & Care, Nihar, Mediker, Revive and Manjal. The company's brand Parachute is a household name in India.

February 5, 2013

Marico | 3QFY2013 Result Update

Profit and loss statement (Consolidated)


Y/E March (` cr) 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
previous year numbers.

FY09 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

FY10 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

FY11 3,126 3,127 17.5 2,719 1,618 346 230 524 407 8.6 13.0 71 337 6.8 10.8 41 30 9.2 326 5.8 (49) 375 85 26.1 290 5 285 236 (2.4) 7.5 3.9 3.9 (1.6)

FY12 4,008 4,008 28.2 3,524 2,099 449 307 669 485 19.0 12.1 73 412 22.4 10.3 42 33 8.1 402 23.5 2 401 78 19.4 322 5 317 319 35.4 8.0 5.2 5.2 34.4

FY13E 4,747 4,747 18.4 4,103 2,432 532 342 798 644 32.8 13.6 100 543 31.8 11.4 55 51 9.4 540 34.1 0 540 123 22.9 416 8 409 409 28.1 8.6 6.3 6.3 22.2

FY14E 5,402 5,402 13.8 4,669 2,757 605 394 913 732 13.8 13.6 101 632 16.3 11.7 38 85 12.6 679 25.8 0 679 167 24.6 512 8 504 504 23.4 9.3 7.8 7.8 23.4

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

February 5, 2013

Marico | 3QFY2013 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 Long term Provisions Other long term liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and advances Deferred Tax Asset Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers.

FY09 61 393 454 0 374 828 414 203 210 58 128 12 64 670 90 130 450 314 355 828

FY10 61 593 654 13 446 1,112 468 242 226 113 146 83 62 897 111 190 596 414 483 1,112

FY11 61 854 915 21 722 45 1 1,704 618 337 281 33 541 89 99 30 1,160 221 161 779 529 632 1,704

FY12 61 1,082 1,143 25 762 42 1 1,973 706 403 303 40 554 296 123 22 1,278 159 218 902 644 634 1,973

FY13E 64 1,938 2,003 25 722 42 1 2,792 1,446 468 978 87 559 146 123 13 1,626 280 276 1,070 740 886 2,792

FY14E 64 2,394 2,458 25 682 42 1 3,207 1,446 569 877 87 564 346 123 2 2,055 567 236 1,252 847 1,208 3,207

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

February 5, 2013

Marico | 3QFY2013 Result Update

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 Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers.

FY09 230 36 (75) 30 41 2 182 (95) (12) (107) 0 16 47 30 (60) 15 75 90

FY10 298 60 (135) 15 64 39 212 (149) (71) (219) 18 72 47 15 28 21 90 111

FY11 376 71 (82) 23 85 45 348 (465) (9) (474) 29 277 47 23 235 110 111 221

FY12 401 73 (45) 25 78 (73) 301 (108) (226) (335) 3 40 47 25 (29) (62) 221 159

FY13E 540 100 (139) 24 123 (25) 377 (792) 150 (642) 500 (41) 50 24 385 121 159 280

FY14E 679 101 (40) (21) 167 9 560 (5) (200) (205) 0 (40) 49 (21) (68) 287 280 567

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

February 5, 2013

Marico | 3QFY2013 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)
previous year numbers.

FY09 66.3 55.8 29.5 0.3 6.1 47.5 17.4 3.3 3.3 3.9 0.7 7.4 35.7 49.6 53.0 4.9 52 17 42 41

FY10 55.9 44.4 20.5 0.3 5.5 38.6 13.0 4.0 3.9 4.9 0.7 10.7 32.5 43.0 43.6 4.6 61 21 46 51

FY11 56.9 37.8 14.7 0.3 4.7 35.2 8.8 3.9 3.9 5.8 0.7 14.9 24.9 39.4 36.5 3.5 70 21 53 43

FY12 42.3 34.6 11.8 0.3 3.7 30.5 7.6 5.2 5.2 6.3 0.7 18.6 23.0 39.0 30.8 3.3 66 17 52 39

FY13E 34.6 27.8 7.1 0.3 3.1 22.7 5.3 6.3 6.3 7.9 0.7 31.1 23.2 34.7 26.0 3.5 64 18 51 43

FY14E 28.1 23.4 5.8 0.3 2.7 19.5 4.5 7.8 7.8 9.4 0.7 38.1 21.4 32.0 22.6 3.5 66 18 51 40

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

February 5, 2013

10

Marico | 3QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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%)

February 5, 2013

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