Marico -Expanding horizons:: Macquarie Research,

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Marico
Expanding horizons
Event
 Marico has successfully metamorphosed from a “commodity oil" company to a
branded FMCG business. We believe Marico is a strong play on the beauty
and wellness segment, both in India and abroad. Marico has a strong
presence in Hair Care, Skin Care and Health Foods categories with leading
brands such as Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti,
Mediker and Revive. Marico also has a strong international presence, with
~23% of sales coming from its overseas operation.

Impact
 Positive response to new product launches. Marico's newly launched
Saffola Oats, with a market size of around Rs1,500m and growing at 40%
YoY, has received a good initial response. Based on the initial success in AP,
Marico has launched Parachute Cool hair oil in two more markets – Tamil
Nadu and Karnataka. The company has also entered the Rs2,400m
Ayurvedic hair oil market with Parachute Advanced Ayurvedic Oil.
 Turnaround in Kaya to drive profit growth. Kaya, Marico’s premium
beauty-care services business, has faced headwinds from the overall
economic slowdown and imposition of service tax in FY10. Management has
taken corrective steps to address Kaya’s problem and we expect it to break
even in FY12E on the back of these actions and launch of Derma Rx products
to strengthen product offerings.
 Threat to margins on raw material cost inflation. Raw material inflation is
impacting Marico’s margins as copra prices have risen significantly during the
current year. Although the company has taken a 12–13% price hike in higher
value packs of Parachute to offset the impact of the higher copra price, a full
cost pass-through is difficult due to significant sales of small packs.
 International business a key growth driver. Marico has grown its
international business at a CAGR of 45% over the past five years. The
international business contributed 23% of Marico’s sales in FY10, up from 9%
in FY05. We expect Marico’s international business to grow at a CAGR of
25% over the next three years.
Action and recommendation
 Maintain Outperform. We believe robust performance of flagship brands, a
Kaya turnaround and new launches provides strong medium- and long-term
growth visibility to Marico. We expect Marico to achieve earnings CAGR of
23% over the next three years.


Marico Aide Memoire
1. What will be the impact on your sales and profit from the Egypt crisis?
2. What is your sales and volume growth guidance for next couple of years?
3. What are your plans for new product launches over the next two years?
4. What kind of competitive intensity you see in your key categories like hair oil, edible oil, etc.?
5. When do you expect to break even on your newly launched brands?
6. What is your strategy for acquisitions?
7. What is the margin profile of your international business?
8. When do you expect Kaya to start delivering profits?
9. Do you feel current margin pressure will continue into the next fiscal year as well?
10. When do you expect softening in Copra prices?