Marico Limited (NSE: MARICO)

Stock Opportunities
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Summary:
 Over the past 5 years, top line and bottom line have grown at a CAGR of 18% and 15% respectively
 The company has 57% market share in Coconut oil in India through its brands Parachute, Nihar and Oil of Malabar.
 In Q3FY15, the Company’s market share continued to gain in more than 80% of its portfolio.
 In Q3FY15, the Company achieved double digit volume growth after 9 quarters.

The company’s share price (as on January 29, 2016): Rs. 223.65 per share
Market Capitalization: Rs. 28,654 crores
52 week high –low: Rs. 169.33 (03-FEB-15) – Rs. 234.30 (21-DEC-15)

Business: Marico operates in Beauty and Wellness segment in Hair Care, Skin care, Healthcare and Male Grooming categories across India and outside India. More than 90% of the Group’s turnover comes from categories in which Marico enjoys No. 1 or No. 2 position.

History: Marico was incorporated in the year 1988 and got listed on the NSE and BSE in the year 1996.

Brands: Marico has nurtured over 25 trusted brands in the categories of hair care, skin care, health foods, male grooming and fabric care.
 It’s India Business, markets house hold brands such as Parachute Advansed, Saffola, Hair & Care, Nihar, Mediker, Revive, Manjal, Setwet, Zatak and Livon that have added value to the lives of 1 in every 3 Indians.
 Its International Business offers unique brands such as Parachute, HairCode, Fiancee, Caivil, Hercules, BlackChic, Code 10, Ingwe, X-Men, L’Ovite and Thuan Phatthat are localized to fulfill the lifestyle needs of its international consumers.

Insider Ownership: Promoter & Promoter Group holds 59.67%.

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Investment Thesis:

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I. Industry:
As per IBEF, the consumer durables sector revenue reached US$ 9.7 billion in FY15 and is expected to reach US$ 12.5 billion in FY16. Consumer durable market expected to grow at CAGR of 13 per cent from FY05 to FY20. The company believes that that the business sentiment improved post May 2014.

According to Nielson, FMCG industry in India is expected to grow from $37 billion in 2013 to $49 billion in 2016.

II. Marico’s growth:
Over the past 5 years, the FMCG top line and bottom line have grown at a compounded annual growth rate (CAGR) of 18% and 15% respectively.

FY15: During FY15 Marico posted revenue from operations of INR 5,733 Crores, a growth of 22% over the previous year. The business delivered a volume growth of 4% with an operating margin of 15.2%.

Latest quarter results (Q3FY16): Revenue from Operations of INR 1,556 crores grew by about 7% over Q3FY15. The company’s volume growth is 11%. After 9 quarters, the company achieved double digit volume growth at group level.

Source: Company

Dividend: On January 30, 2016, the Board of Directors of the Company has declared a second interim dividend of 150% (Rs. 1.50 per share)

Source: Company

III. Suitable environment: In April 2015, the copra was sold at Rs. 99-100 per kg. The Agro Marketing Intelligence and Business Promotion Centre of TNAU have said that the price of copra will be around Rs. 50- 53 per kg during January to March 2016.

Why is this important? Copra is one of main raw materials for Marico. The price of copra has been up by 60% in FY15 as compared to FY14, copra accounts for a major proportion of input costs, hence the Company’s gross margins declined by 321 bps during FY15.

Hence declining copra prices helps Marico to improve its margins. Depending upon the speed and extent of the deflation of copra prices, the company expects to deliver a volume growth of 5-7% in the near term.

IV. Volume Market Shares:
The company has sizable market share in India in the coconut oil industry and is constantly making efforts to gain market share in rural India.

Coconut oil: The branded coconut oil market size is INR 4,500 crores and approximately 35-40% in volume terms which is still in loose form. The company expects that the loose component provides headroom for growth to the branded players. In Q3FY16 and YTDFY16, Parachute Coconut Oil had 4% and 7% volume growth respectively.

Saffola - Super premium refined edible oils and breakfast cereals: Saffola Oats has 25% market share in India and has No. 2 rank in the market. The company predicts that it will reach Rs. 120 crores in this year and Rs. 200 Crores by FY18. Saffola Masala Oats has launched two new flavours viz. “Chinese and Italian” during January 2016 to gain market share.

Source: Company

Awards:
 Marico won the “Best Domestic Company for Corporate Governance” across sectors in a poll conducted by Asiamoney.
 Saffolife #ProtectHerHeart won Gold at the India PR & Corporate Communications Awards.
 Saffolife #ProtectHerHeart won Gold at the India PR & Corporate Communications Awards.

Company’s future outlook:
 In the medium term, the company aims to grow this franchise at a volume growth rate of 12-15%.
 In the medium term, the company aims to grow its international business at an organic top line growth of ~ 15%.

Conclusion
Marico’s growth story and its growing market share in India make it a unique candidate for long term holding.

Exhibits:
Financials


Source: Company

2 Likes
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Very good company…but the valuations are a little too stretched. If it corrects to below 200 levels, it ll be a screaming buy.

Dics: Invested at 130 Levels. 10 % of portfolio.

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Good I found Ranvir :slightly_smiling:

Jokes apart, I had been exploring FMCG sector off late. Trust me its boring sector without the thrills of IOT, Cloud, eCommerce kind of stuff :-). However as wise investors say often century old boring business with steady predictable earnings do great over the long term. Coming to the point I have done some relative FA & Valuation of few FMCG companies & surprisingly GCPL & Marico are not among the top. Will deep dive further but it may work as a starting point to deep dive further systematically.

Disc: explorng fmcg & hfc sectors.

2 Likes
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Best thing about Marico and GCPL is that both are comfortable leaders in their respective focus seagments with limited competition from Western MNCs.

Eg1- Marico is the undisputed king in hair oils. Dabur,Emami and Bajaj Corp are far behind. Also no MNC competition.
Leader in Super premium cooking oils and Hair gels. Again no MNC competition
Look at its q2 standalone numbers…they are nothing short of miraculous in the face of sluggish consumer demand…again due to limited competition.

Eg2- Gcpl is a leader in Household Insecticides with only one big competitor. JLL is still far away. Moreover the category is under penetrated.
Again, in mass segment hair colour, competition is limited.
In air fresheners again, competition is limited

Also-Both Marico and Gcpl have significant overseas operation unlike-HUL, ITC, Britania, Nestle India, Kwality, P&G india.

All these things make them stand out.

3 Likes
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Yes Sir, I like your point “century old boring business with steady predictable earnings do great over the long term”. I think with copra prices declining, Marico might be just more than good for the long term.

Disclaimer: I don’t hold any shares in this company. Just trying to identify what is a good investing model.

1 Like
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Areas where Patanjali is having a major impact are - Juices, Squashes, Dals, Atta, Biscuits and soaps etc.

Patanjali’s impact on Household Insecticides, Branded Cosmetics, Hair Oils (already aurvedic), Shampoos, Hair colours etc is not going to be too significant.

That’s the take of most brokerages. I also tend to agree with them.

Disc: invested in GCPL, Marico, JLL, Emami - 9% each( total of 35%).

1 Like
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Ranvir,

On a lighter note- you are heavily loaded with FMCG.

May I ask your monthly grocery bill :stuck_out_tongue:

FMCG is a vast term- Product Line wise analysis is the key. Can you share some brokerage report that you mentioned.

Thanks !

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And I forgot to mention- Rice, Oralcare and Skincare are other segments where Patanjali is expected to show some traction.
More affected parties(in my opinion) would be- HUL, ITC, Dabur, Britania, P&G, Emami and Colgate. But the extent of loss of market share…only time will tell. Also, one has to study the consumption per capita of these products and compare them to other countries. In most products, we will find that most categories are under penetrated ( except maybe soaps and in-expensive shampoos and skin care creams). So, there should be adequate room for most companies to grow.

Less affected parties should be-Marico, GCPL, Kwality, Jyothy Labratories etc

@Anupam…I had read those reports some time back. Will try and find them.

And, as far as possible, I buy Grocery of the companies I have invested in. :grin: Its great fun. Grocery for me these days is what diamonds to ladies!!! My wife keeps me check…obviously.

3 Likes
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Here is something interesting- http://www.livemint.com/Opinion/kPrAY2ZYQ9BrzYqbACTVZN/Baba-Ramdevs-Patanjali-making-Colgate-and-Unilever-sweat.html

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people are talking of FMCG sector. But where is the moat in the sector?
when modern retail comes in, they usually bring in their house brands which
ends up accounting for the bulk of the sales in a store. This has happened
in the US and is slowly taking root in India. For instance, D Mart in
Mumbai is following Walmart. House brands by DMart are of good quality and
priced very competitively and are reporting good sales.

I would play the consumption story in India by investing in HFCs and
consumer finance cos.

1 Like
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Another point to note here is the huge amount of royalty that is paid by the likes of HUL,nestle…to their parent company. this erodes shareholder value. Marico, GCPL do not have this problem.

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@Shivkumar… I think the penetration of organized retail in India’s total retail sale would be paltry at present.

Private labels do well only in certain categories only…like packaged-atta, rice, dal, dish washing soaps etc

Other categories are generally immune, specially the premium products…because of brand conciousness.
There lies the moat…Brand Loyalty

3 Likes
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i have a question …if patanjali is growing at such an alarming rate…would FCEL - future consumer enterprise not be a good investment. the co. is in losses but looking at the future and with exclusive deal …one confusion is which future company has the deal with them…is it FCEL or Future retail.

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CONFERENCE CALL

Marico

Expect to deliver 8-10% volume growth in the medium term

Following are the key highlights of the call:
The company’s 84% portfolio gain market-share.
Urban consumption will gradually pickup in India. Slight uptick seen in modern trade. Rural continues to be soft. Affordability will be key for growth in rural
Parachute volume growth is soft as trade stocks down during price deflation scenario
The mgmt said that Parachute 4% growth is even good in falling price scenario.
In Parachute, the company has pass the benefit of raw material to consumer ensure market share and profitability.
To present across various price point pack and increase distribution focus in VAHO especially in tough scenario in rural India.
Hair Fall is a Rs 900 crore category.
Parachute Advansed Ayurvedic Oil scaling will happen very soon.
Livon is facing counterfeit issue on e-commerce site.
The Rs. 5 spout pack is introduced in Nihar Shanti Amla to penetrate more in rural area especially where there is softness in rural India. Expanding the category from unbranded to branded is main object of spout pack.
The difference between premium vs unbranded mustard oil is in range of 150%.
Body lotion category is stagnant and the company didn’t had any market-share gain in last 2 yrs.
Going ahead expect copra and crude prices to be soft, The Company can take strategic position in this raw material, so gross margins are intact for FY16 and FY17.
Expect to deliver 8-10% volume growth in the medium term
Till Q3 16-17, the company will see deflationary impact on raw material.
The company is open for acquisition.

1 Like
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How are you deriving these values used in your calculations? Can you please explain?

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For those interested, Marico gives quite a detailed analysis of their performance every quarter for the investors. Here is a link for the Dec 15 quarter investor information:

http://marico.com/investorspdf/Information_Update_-_Q3FY16.pdf

Reading progressive information updates going back is very interesting and gives a good idea about Marico’s strategy and execution abilities.

Discl: Invested. Holding for a few years now.

1 Like
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Excellent Co., due to the only reason being a great management, because initially they branded coconut oil (a commodity). This is a good example of great execution how they branded a commodity and achieved a reputed brand with high margins. I purchased it on 25th March, 2004, indeed which has given me a very great return. Not only the COA was returned by the co. by dividends but also bonus given twice in the ratio of 1:1 and free shares of Kaya.The co. itself constitutes 33% of my portfolio.

2 Likes
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CONFERENCE CALL - from Capital Markets

Expects low value growth in H1 FY17

Marico held conference call to discuss the results for the quarter and year ended March 2016. The top management of the company addressed the call.

Following are the key highlights of the call:

  • The mgmt expects low value growth in H1 FY17. Expects some price hike from Q3 onwards.

  • Q1 FY17 expects subdued due to drought situation. Once monsoon get good, expects good number in later part of Q2 FY17.

  • The mgmt said that in the near term, the copra prices are likely to trade in a narrow band compared to current prices. The company will invest behind brand building and tactical inputs to remain competitive. The Company may selectivity take price increases, should the input costs firm up in the second half of FY17 to maintain margins. The company expects to deliver a volume growth of 5-7% in the near term in Parachute.

  • Some raw material inflationary cost push expected in H2 FY17, will result in price hike.

  • 20% growth in youth business in FY17 expected.

  • The mgmt said that consumption trend in H2 FY17 will help discretionary category.

  • The mgmt said that in Parachute, it is ready to sacrifice some value growth as long as able to grow volume and maintain or increase marketshare.

  • Gross margin could go little up in Q1 FY17 and then steady off, as inflation could start in raw material.

  • The mgmt expect copra price has bottomup, and expects it to rise this year .

  • Bangladesh has seen 6-7% price drop in FY16. The mgmt expects Bangladesh to have 10% volume growth in FY17.

  • There continue to be weakness in urban general trade. Seen some uptake in Modern trade in last 2 quarter. Urban recover expected in H2 FY17.

  • The company might not increase Saffola price in Q1 FY17 and might some in Q2, but mop up in Q3.

  • 50-60% dividned payout can likely happen.

1 Like
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Have a read - Marico Goes Bare-Knuckled in Fight for Volumes