I had been thinking of investing in Marico. But seeing Marico and Dabur compete purely on price, I think I’ll give this a pass. I think this is the beginning of the end of the FMCG euphoria.
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Price wars in certain FMCG categories are not uncommon. They are not very healthy for the participants though. As long as the participants are able to maintain their gross / operating margins ( at the company level ) within the guided band, its not much of a worry.
Disc: invested in both Dabur and Marico.
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@sarthakkumar19_
Yes, price wars are in fact pretty common. If you have read Marico’s story from ‘Unusual Billionaires’ book, then you will see that Marico had engaged in such wars with HUL during its early days in nineties and then with Dabur in early ‘00, but won in both occasions using different strategies.
I feel the slowdown period and consumers inclination towards low priced goods have triggered such wars. Marico is market leader in coconut oils and if with this opportune moment Dabur can seize even a few % of market share then its all good for them. Reverse is the case with Amla hair oil where Dabur is market leader.
Anyway Dabur has evidently been showing more aggressiveness under its new management team to promote their power brands. Being a shareholder of both the companies I am enjoying this duel. 
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One thing i am sure, dabur cannot easily defeat Marico in a war in coconut oil, unless Marico itself wishes to give it a few percent points of share. Marico has ability to price it lowest but that’s not what they would do…they would use different tactics. Now coming to amla oil, here dabur does not have any big efficiency or raw material advantage like Marico has with copra…i own both companies shares. Not happy with dabur to show such cheap aggression. I see such advertisements as desperation of the current management and not of the brand or the company. I see them as good opportunities for long term investors to make use of the disruptions.
Disc. Hold both Marico and dabur in core portfolio. Eagerly waiting for Marico to fall more to buy more. Fingers crossed.
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Time like this provides good opportunity to build long term portfolio with great long term FMCG picks which are available at relatively attractive valuations due to economic slowdown. Marico, Dabur, Godrej Consumer, HUL fall in those category IMHO…
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Actually Marico started this on 2010 with Amla Hair oil category & was able to increase market share from 19% to 33% in a span of 3 FY. Dabur didn’t bother to respond and kept loosing market share. Dabur Amla is still much higher priced than Nihar Amla & still is the market leader. So, that speaks volumes of its brand equity.
– The above quote is from ‘Unusual Billionaires’ book.
AFAIK, Dabur started the same tactics with Coconut oil on 2016, however I don’t know the consequences.
So, this is nothing new & both don’t consider this tactics as unhealthy as both had resorted to the same before.
Actually such aggression is pretty common in every places. Yesterday, I shared a report on how Nestle is giving more content compared to Cadbury in categories where they aren’t the market leader. However, they didn’t advertise it.
In this regard, we must’ve remembered how Cadbury did the more-content awareness through a hilarious Ad war with Nestle, which is the market leader in Wafer Chocolate.
http://lighthouseinsights.in/on-wafer-chocolate-wars-cadbury-perk-or-nestle-munch-who-won-on-social-media.html/
So, either the war is through more-content or less-price. But as I mentioned, given the economic environment of slowdown less-price is expected to catch more eyeballs.
Brand is a moat for sure but the companies also have to ensure that the moat is giving them more prosperity.
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Hi…
Marico has indeed corrected a bit. But it’s PE band is a little misleading. Last year they had an exceptional item ( tax write back …i guess ) in q4 which led to a 200 cr ( aprox ) bump in q4 profitability.
Adjusted for that and taking into account this yr’s earnings ( say 1000 cr ), the stock is trading at a FY 19-20 PE multiple of 45 or so which is Okayish kind of valuation…in my opinion.
Disc: Invested in both Dabur and Marico.
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Quarterly updates - Marico updates for quarter performance( available on BSE)rules out any turnaround for consumer staple segment as whole in third quarter( saffola did better but rest were flat/negative)…liquidity issue persists in channel per company, better monsoon didnt help either…while bottomline will improve leading to further healthy PE ratio…
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I am a Marico shareholder for last 15 years, but I get a feeling that Marico is running out of steam from product portfolio perspective.
Two largest products are Parachute Coconut oil and Saffola edible oil. Now both are essentially branded commodities.
Saffola cooking oil has tough competition from Adani-Wilmar now.
Saffola foods have not been much of success. Their Oats are costlier that Quarker. Other food items did not take off.
Parachute coconut can enjoy only so much premium as it is pure commodity.
Value added hair oils have tough competition from Dabur, Emami and Bajaj.
So, their product basket does not look very inspiring and not positioned strongly for future. They need to innovate and come up with some compelling offering.
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Eicher seems to be a good reference for innovation during last tough year…new product launches and segment creation(Twins, women focused), global Mkt penetration( new countries and inroads in current), tier 2 and 3 focus in India, Studio showrooms leading to ops efficiency…
Marico seems to be attempting similar with recent acquisitions and Kaya in past…key Q comes to mind is that DNA of org was to build brands on commodities with success…rarely a success in innovation driven success yet. I believe they realize and are working on it…for short term single digit volume growth in India( traditional and digital channel) and support from global expansion should be good enough to arrest fall …this itself is elusive as of now. Hoping that “Hope” is not the key strategy…
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Yes. But only successful launch so far has been Parachute lotions and Hair creams. Other launches have been failures. Which is kind of ok, but they need to get one launch a year right to maintain growth.
Even Godrej consumer is in same boat. Their past products have reached saturation limits in target markets.
Dabur is better placed as Ayurveda has huge untapped potential.
But question is, if in ITC I get better growth at half PE, what do I do.
Disclosure: 4% of PF. Not addition since last 5 years.
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Well, I agree with your thoughts on both Marico and GCP and I am sure their managements and promoters would also agree - That they need next set of products/brands for the next decade or so. Talking specific to Marico, We must not forget the quality of management and company DNA here which has been to reward shareholders in long term - Be it couple of decade of transforming commodities into Brands, Demerging of Kaya, strategic acquisitions like Nihar etc. From the information in public domain, I am aware that they are working on next decade brands, focussing strongly on digital channels (Studio X range), Saffolla Fittify new varieties of products - though none too successful at the moment. They are working on new age products like Green Coffee, Plant Proteins, Coconut Spreads etc. - These all are nascent categories in India and may never take off but it shows that they are trying new things and not sitting idle and in denial.
Next decade may not be easy for home grown FMCG, but it has never been easy. Niche product for India, distribution and sourcing has been its strength so far to fight with Foreign MNCs. Digital is an open playground now, private labels are threats (How real, only time will tell). I recently checked Big bazaar (Dmart was too crowded ), it had no supply of Godrej Protekt range, Tata Sampann Masalas/Pulses and not even Tata Tea. For Godrej, all I could find was Soap, Hit, Good Knight and Marico was all about Parachute (with its twin Dabur Anmol by its side) and couple of big dabbas of Safolla oil. Tata Had no presence at all! I checked with store person and he said supply issues, it will come. I doubt, as they wanted to sell limited products from these brands and push more of their private label (which is so inferior for Big bazaar). Britannia, parle, Abott (Private one that sells Pediasure etc), Nestle, HUL ruled the spaces.
But, next thing to think was - Tata sales rose decent, although single digit. Also, Godrej and Marico still sell well - They are not out of business Yet. Point is - No matter how big BIG Bazaar has become, it doesnt matter much to these companies. I went to a local kirana (a big super mart type one but purely desi style) - Only Masalas he sold was Tata Sampann. Star Bazaar is king of private labels (on lines of Westside) but it holds Godrej Protekt. No store can survive without a Parachute and Saffola still (agree saturated and more brands needed)…
The fight is touch, what would matter is intent, capability and homework in terms of not only the innovation in building brands but on the other things that can still make you a winner even if a Big bazaar or a DMart doesnt sell your single product!
Disclosure: Marico, GCP and Tata global part of core portfolio. Fresh buys in all three in last 1 year. Above is no buy sell recommendation but purely my thoughts at the moment on homegrown FMCG MNCs and I maybe wrong in my views
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Question is not about sustaining but about growth. You can not command 40 PE for 5% growth.
Management is my biggest fear after Mariawala stepped down from CEO post. Last few years have been lackluster. We need to see how well transition pans out promoter-CEO to professional CEO. Ability to create new brands is for professional CEO is going to be a challenging.
If things don’t workout it may get clubbed with Bajaj consumer.
Transision has worked out well for Dabur but difference is that Dabur has a large basket of legacy brands which CEO needs to revive/relaunch and so on.
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Bajaj Consumer has its own set of problems bigger than its single brand problem. Those issues are much more grave in nature as compared to those of Marico and GCP.
Saugata Gupta - CEO of Marico Ltd. has been rated best CEO Private Sector for 2019 by Forbes India
Disclosure - invested. Added more in last one month
Thanks for sharing, interesting timing for award when returns to shareholders is negative for year when mkt is at peak.
This para stands out for me - Marico has been high on innovation, but low on retaining focus to make the products a success. Gupta admits they need “scale in their innovations”.
Although inorganic… small innovation seems no more an issue- this also appears that there are many 100 to 500 cr type opportunities in their new product baskets( majorly acquisitions). How would scale come if mkt size itself is small as of now?
With urbanization and lifestyle changes - each of these categories should deliver decent growth for individual P&L base. Likely that some of these categories become sizable in coming years esp in Male grooming and health foods( ITC too starting to focus here).
If only single digit volume growth and early double digit
in value sustains in core biz and core mkt( oil) for short to medium term, medium term delta likely to come from these new age products. It would be useful to understand how the org structure is aligned to future broad base product basket/category approach.
Solid consumer engagement and customer experience for niche brands and morden trade and non commodity brand elements at play. Marketing has to be very different from what has been done for original Marico.
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Exactly, the situation for most of Marico’s new innovations. They have been in categories which are nascent in India and even in world. Just like Agro tech Food’s Peanut Butter (for Indian markets). In Healthy foods, stuff like Green Coffee, Coconut Spreads, Plant proteins…all have a very small market as of now. Having said that, I remember Mr Gupta mentioning that they do not need to be present in all channels for every product to be a success to the level they desire! Say for eg. for Beardo, they maybe happy with the current set of online customers only. For Fittify, they would be fine with some less value conscious Star bazaar customers etc. The real scale would come in one off products where innovation and market size and acceptance coincides! The good thing is that the management is working on strategies on these new age brands and how to channelize them. They are acting swift and nimble in introducing and even discontinuing the innovations. Although I would have liked a one solid innovation in a huge market size category rather than multiple small ones! The kind of where you can have the courage to throng multiple channels at one go and disrupt the market. But, we are in a challenging world and its easier said than done! (Tata Global also suffered with many wrong small innovations in last decade and it is indeed not good for shareholders. I hope Marico charts its own path soon)
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I believe even more than the market size we need to see how fast that market is evolving. If say the market of Green Coffee is growing at 20-25% CAGR then we shouldn’t worry about the small market size. All they need to do is run campaigns to build awareness to accelerate the market growth. Like you see in case of Liquid detergents the market size was small and Godrej Ezee was the market leader until HUL aggressively pursued campaign led promotions and now have liquid detergents in most of their detergent brands.
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I agree, and that is what the management intention is. Although, did not show result in last Q result as they must not contribute anything meaningful yet. I didn’t know Godrej Ezee is a liquid detergent product. Is it doing well?
One thing about Marico is clear though…they target very unique new categories.