Marico | 1QFY2014 Result Update

August 20, 2013

Marico
Performance Highlights
Quarterly Result (Consolidated)
(` cr) Revenue EBITDA OPM (%) Recurring PAT 1QFY14 1,380 227 16.5 155 1QFY13 1,267 185 14.6 124 % yoy 8.9 22.8 187bp 25.4 4QFY13 997 119 11.9 51 % qoq 38.3 90.8 452bp 206.5

NEUTRAL
CMP Target Price
Investment Period
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 13,824 411 0.5 250/166 32,193 1 19,722 5,995 MRCO.BO MRCO@IN

`211 -

Source: Company, Angel Research

For 1QFY2014, Marico posted a strong 25.4% yoy growth in its consolidated net profit to `155cr, aided by an 187bp yoy increase in OPM to 16.5%. The OPM increased on account of use of low-cost copra inventory. Domestic volume growth stood at 10%. Key highlights during the quarter: The domestic consumer business posted a growth of 7% despite a 10% volume growth, due to the price cuts undertaken by the company particularly in Parachute. While volume growth in Parachute stood at 4% yoy, revenue of the brand declined by 3%. Saffola posted a volume growth of 10%, with the revenue growth coming in lower at 6%. The international business posted a top-line growth of 15% yoy with constant currency growth coming in at 13% yoy. The company continued to perform well in geographies such as Egypt, Vietnam and Bangladesh. However, business in GCC continued to report a decline. The companys performance in this region was affected due to certain execution challenges. The OPM rose by 187bp on a yoy basis aided by higher gross margin and decline in other expenses as a percentage of sales. 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 24.6x FY2015E EPS. We believe the stock is fairly priced and hence, maintain our Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex MRCO 3m 1.2 2.6 1yr 21.6 23.1 59.7 2.1 31.7 6.5 3yr 16.1 93.2

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) FY2012 3,968 26.6 319 34.4 11.9 5.2 40.7 11.4 30.8 23.0 3.5 29.4 FY2013 4,584 14.4 363 13.9 13.4 5.6 37.5 6.9 23.3 22.3 3.1 23.1 FY2014E 5,104 11.3 461 26.8 15.1 7.1 29.6 5.7 21.1 21.9 2.8 18.2 FY2015E 5,876 15.1 553 20.1 15.2 8.6 24.6 4.7 20.9 22.6 2.4 15.7

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

Source: Company, Angel Research; Note: CMP as of August 19, 2013.

Please refer to important disclosures at the end of this report

Marico | 1QFY2014 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

1QFY14 1,380 671 48.6 106 7.7 176 12.8 200 14.5 1,153 227 16.5 12 21 17 211 2 213 15.5 51 24.0 4 158 11 64 2.4 155

1QFY13 1,267 641 50.6 95 7.5 156 12.3 191 15.1 1,082 185 14.6 17 19 18 166 166 13.1 40 24.2 2 124 10 64 1.9 124

% chg 8.9 4.7 11.7 13.0 4.7 6.5 22.8 187 (29.0) 6.6 (5.6) 27.0 28.5 27.3

4QFY13 997 441 44.2 99 9.9 126 12.6 213 21.4 878 119 11.9 11 25 12 94 33 127 12.7 41 31.9 3

% chg 38.3 52.2 7.2 40.1 (6.2) 31.2 90.8 452 7.3 (18.7) 44.7 124.7 67.9 26.3

FY2013 4,584 2,210 48.2 381 8.3 598 13.0 782 17.1 3,970 614 13.4 58 87 49 519 33 552 12.0 146 26.5 10

FY2012 3,968 2,132 53.7 307 7.7 426 10.7 631 15.9 3,495 473 11.9 42 73 44 402 (2) 400 10.1 78 19.5 5 317 8 64 4.9 319

% chg 15.5 3.7 23.9 40.4 24.0 13.6 29.8 36.9 19.4 12.0 29.0 37.8 86.8

27.4

84 8 64

88.1

396 9 64

24.8

27.4 25.4

1.3 51

88.1 206.5

6.1 363

24.8 13.7

Exhibit 2: Actual vs Angel estimates

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

Actual 1,380 227 16.5 155

Angel Est 1,397 196 14.0 136

% yoy (1.3) 16.0 245 14.5

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Marico | 1QFY2014 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

1QFY2014 1,382 1,296 1,001 295 87 237 234 201 32 3 17.1 18.0 20.1 10.9 3.5

1QFY2013 1,270 1,190 934 256 81 195 202 185 17 (7) 15.3 17.0 19.8 6.7 (9.0)

% chg 8.8 8.9 7.1 15 8 21.4 15.6 8.8 88.3

4QFY2013 999 913 697 216 85 128 130 126 3 (2) 12.8 14.2 18.1 1.6 (1.9)

% chg 38.4 41.9 43.5 37 2 84.5 79.9 59.3 856.0

Top-line growth at 9%
Domestic business: The domestic consumer business posted a growth of 7% despite a 10% volume growth, due to the price cuts undertaken by the company particularly in Parachute. While volume growth in Parachute stood at 4% yoy, revenue of the brand declined by 3%. The sale of Parachute was adversely impacted by the Local Body Tax (LBT) issue in Maharashtra with Maharashtra being a key market for coconut oil. The proportion of pouch packs in the coconut oil portfolio has reduced to less than 15%. Saffola posted a volume growth of 10%, with the revenue growth coming in lower at 6%. The company had initiated certain price cuts in select packs to the tune of 2% to 3% to boost Saffolas volume. Value added hair oils posted a volume growth of 16% during the quarter. Youth brands (Set Wet, Zatak) too posted an impressive growth and registered a top-line of `55cr. International business: The companys international business posted a top-line growth of 15% yoy with the constant currency growth coming in at 13% yoy. The company continued to perform well in geographies such as Bangladesh, Vietnam and Egypt. However, business in GCC continued to report a decline. The Bangladesh business posted a healthy growth of 16% yoy with inflation in the country showing downward trend. The Egypt business posted a healthy growth of 30% yoy during the quarter despite the internal disturbances in the country. Marico had carried out a packaging change in its Parachute hair cream portfolio in GCC, which met with some execution challenges and poor reception from consumers, thus resulting in a de-growth on the top-line front. The company has stepped up its advertising expenditure and expects business to pick-up in this region in FY2014.

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Marico | 1QFY2014 Result Update

Exhibit 4: Top-line growth moderate at 9%

1,600 1,400 1,200 1,000 (` cr) 800 600 1,041 1,058 1,267 1,156 400 200 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 974 918 10.0 1,164 8.7 997 1,380 32.3 25.1 29.4 22.8 21.7 18.6 8.9 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)

OPM up 187bp yoy due to improvement in gross margin

The OPM rose by 187bp on a yoy basis, aided by higher gross margin and decline in other expenses as a percentage of sales. Gross margin improved on account of use of low cost copra inventory. However, prices of copra have been on an uptrend over the past few months, which could result in lower gross margins for the company going forward.

Exhibit 5: Gross and operating margins

60.0 50.0 40.0 42.8 45.3 53.5 48.5 49.4 51.5 52.0 55.8 51.4

Exhibit 6: Earnings performance

180 160 140 120 9.4 (2.7) 21.0 9.7 21.6 45.7 25.4 50.0 40.0 30.0 20.0 10.0 (10.0) 124 102 (29.1) 155 1Q14 51 (20.0) (30.0) (40.0) 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 59 84 71 86

30.0 20.0 10.0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 12.0 12.0 11.5 12.0 14.6 12.8 13.9 11.9 16.5

(` cr)

(%)

100 80 60 40 20 -

OPM

Gross margin

PAT (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

August 20, 2013

Marico | 1QFY2014 Result Update

Investment arguments
Impressive volume growth across categories: Marico has not witnessed any significant fall in volume growth despite the slowdown in consumption witnessed in the economy. Key raw-material prices softened considerably in FY2013 and are expected to remain benign going ahead. Thus, we expect the company to post a margin expansion over FY2013-15. International business to bounce back going ahead: The international business now contributes ~22% 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 business environment in the international markets.

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 future. At the current market price, the stock is trading at 24.6x FY2015E EPS. We believe the stock is fairly priced and hence, maintain a Neutral rating on the stock.

Exhibit 7: One-year forward P/E chart

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

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

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Marico | 1QFY2014 Result Update

Exhibit 8: Peer valuation

Company Asian Paints Britannia Colgate Dabur India Godrej Con GSK Con* HUL ITC Marico Nestle* TGBL Reco. Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr) 40,939 8,706 17,480 28,273 28,063 16,956 127,317 248,354 13,630 47,579 8,726
#

CMP (`) 427 728 1,285 162 825 4,032 589 314 211 4,935 141

TP (`) -

Upside (%) -

P/E (x) FY14E 30.7 30.1 31.2 30.4 32.8 33.0 35.3 27.9 29.6 40.0 18.7 FY15E 26.6 24.6 26.6 25.8 27.8 27.1 32.4 23.6 24.6 33.0 16.6

EV/Sales (x) FY14E 3.2 1.3 4.7 3.9 3.7 4.2 4.3 6.8 2.8 5.0 1.0 FY15E 2.7 1.1 4.0 3.4 3.2 3.5 3.8 5.7 2.4 4.2 0.9

RoE (%) FY14E 35.6 39.6 100.0 39.2 24.8 34.1 112.2 36.1 21.1 56.4 9.3 FY15E 32.7 37.7 91.0 36.7 24.2 33.7 88.1 34.9 20.9 50.3 9.7

CAGR # Sales 15.4 15.1 15.7 16.2 18.8 17.6 12.6 16.2 13.2 14.4 11.0 PAT 17.5 24.4 15.0 19.5 18.9 19.6 11.1 19.2 23.4 14.5 14.4

Source: Company, Angel Research; Note: Denotes CAGR for FY2013-15E;*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 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.

August 20, 2013

Marico | 1QFY2014 Result Update

Profit and loss statement (Consolidated)

Y/E March (` cr) 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.

FY10 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 0 308 25.7 10 298 64 20.9 234 2 232 241 18.5 9.1 4.0 3.9 18.5

FY11 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 0 326 5.8 (49) 375 85 26.1 290 5 285 236 (2.4) 7.5 3.9 3.9 (1.6)

FY12 4,008 28.2 3,524 2,099 449 307 669 485 19.0 12.1 73 412 22.4 10.3 42 33 8.1 0 402 23.5 2 401 78 19.4 322 5 317 319 35.4 8.0 5.2 5.2 34.4

FY13 4,584 14.4 3,971 2,210 598 381 782 614 26.6 13.4 86 528 28.1 11.5 58 49 9.5 0 519 29.1 0 519 146 28.1 373 10 363 363 13.9 7.9 5.6 5.6 8.6

FY14E 5,104 11.3 4,332 2,500 597 373 862 771 25.7 15.1 114 657 24.5 12.9 42 61 9.1 0 677 30.3 0 677 208 30.8 468 8 461 461 26.8 9.0 7.1 7.1 26.8

FY15E 5,876 15.1 4,982 2,873 688 429 993 894 15.9 15.2 122 772 17.5 13.1 40 78 9.6 0 810 19.7 0 810 250 30.8 561 8 553 553 20.1 9.4 8.6 8.6 20.1

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

August 20, 2013

Marico | 1QFY2014 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 adv. Deferred Tax Asset Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers.

FY10 61 593 654 13 446

FY11 61 854 915 21 722 45 1

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

FY13 64 1,917 1,982 35 791 42 1 2,850 1,615 453 1,161 97 559 152 143 (6) 1,595 267 269 1,059 851 744 2,850

FY14E 64 2,329 2,393 35 751 42 1 3,222 1,715 567 1,147 103 564 352 143 0 1,778 344 251 1,183 865 914 3,222

FY15E 64 2,833 2,897 35 711 42 1 3,686 1,865 689 1,176 112 569 752 143 0 1,903 290 251 1,362 968 935 3,686

1,112 468 242 226 113 146 83 62 897 111 190 596 414 483 1,112

1,704 618 337 281 33 541 89 99 30 1,160 221 161 779 529 632 1,704

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

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Marico | 1QFY2014 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.

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

FY13 519 86 (9) 28 146 68 546 (971) 144 (827) 437 29 50 28 389 108 159 267

FY14E 677 114 (100) 6 208 (6) 483 (111) (200) (311) 0 (40) 49 6 (95) 77 267 344

FY15E 810 122 (81) 5 250 (3) 604 (164) (400) (564) 0 (40) 49 5 (95) (54) 344 290

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

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Marico | 1QFY2014 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.

FY10 53.8 42.7 19.7 0.3 5.3 37.2 12.6 4.0 3.9 4.9 0.7 10.7 32.5 43.0 43.6 4.6 61 21 46 51

FY11 54.7 36.4 14.2 0.3 4.5 33.9 8.5 3.9 3.9 5.8 0.7 14.9 24.9 39.4 36.5 3.5 70 21 53 43

FY12 40.7 33.3 11.4 0.3 3.5 29.4 7.4 5.2 5.2 6.3 0.7 18.6 23.0 39.0 30.8 3.3 66 17 52 39

FY13 37.5 30.4 6.9 0.3 3.1 23.1 5.0 5.6 5.6 7.0 0.7 30.7 22.3 33.0 23.3 3.4 64 18 61 35

FY14E 29.6 23.7 5.7 0.3 2.8 18.2 4.4 7.1 7.1 8.9 0.7 37.1 21.9 30.9 21.1 3.4 66 18 56 38

FY15E 24.6 20.2 4.7 0.3 2.4 15.7 3.9 8.6 8.6 10.5 0.7 44.9 22.6 30.5 20.9 3.5 66 18 54 38

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

August 20, 2013

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Marico | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

August 20, 2013

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