Mar 30, 2005|
Marico: A peep into the past
Marico Industries is the market leader in the hair oil segment, whose brand Parachute has become generic in nature. It also has a prominent market share in the branded edible oil space with brands like Saffola and Sweekar. In this article, we take a look at the company's journey over the past 5 years.
Promoted by Mr. Harsh Mariwala, Marico group's history can be traced back to 1862, when Bombay Oil Industries Ltd (BOIL) was set up in 1948 with manufacturing facilities in Mumbai for coconut oil extraction plant, vegetable oil refinery and a chemical plant. Marico was incorporated in 1988 to take over the then 40-year old consumer products business of BOIL. The division was engaged in marketing of coconut oil, edible oil, instant starch, fruit jams etc.
Marico made its IPO for equity shares in March 1996. Earlier the brands of Saffola and Parachute were owned by BOIL, and Marico was given access to use these brands for perpetuity. Besides hair and edible oil, the company has a presence in niche segments like instant starch (Revive), anti lice shampoo (Mediker) and food products like jams and sauces (Sil). Parachute, Saffola and Sweekar are the key earnings drivers, contributing to almost 80% of Marico's turnover. The company has 12 brands under its product folio and also Kaya, the skin care services business.
Over the years…
|Sales & Services
|Operating margins (%)
|Net Profit After Tax(loss)
It can be seen in the table above that Marico's topline has clocked a respectable 8% CAGR growth over the years despite the FMCG sector underperforming for sometime now. Profit after taxes have also registered a good CAGR growth of 13% in the period under review aided by the improvement in profitability. The company's dependence on other income has reduced which is a positive.
The coconut oil market is valued at over Rs 7.5 bn. Only 45% of the coconut oil is sold in the country in the branded form and the rest is sold in loose (unorganized market). Marico has a 55% share in the branded market. Here lies a huge opportunity for the company since penetration levels in the rural areas are currently low and considering Parachute's brand recall, there is a huge untapped market.
The branded segment can be divided into pure coconut oil market and value added hair oil market. The pure coconut oil industry has grown at a CAGR of 6% to 7% during the last 4 years while the value added oil market has grown at a CAGR of 4% p.a. during the last 3-4 years, which has slowed down compared to its growth in the late 90s period. The company has extended its 'Parachute' brand to the value added oil category (Parachute Jasmine). The brand is now No. 1 in this category with a 32% market share. 'Hair & Care', Marico's non-sticky hair oil brand, is also No. 2 in its category. It must be noted that while Marico, Dabur and HLL are the leading players at the national level' there are several other players with a regional focus.
In edible oils, the company's brands 'Sweekar' and 'Saffola' together occupy the No. 3 position. Branded edible oil accounts for just 35% of the total edible oil consumption in the country. However, the relative proportion of edible oil sold in packaged/branded form has been rising steadily with increasing awareness about health and hygiene. Further, in the fabric care segment, Marico is the pioneer and the only player catering to niche Indian requirements such as starching (Revive), where it has nearly a 100% share.
Over the past two years, Marico has rolled out 21 'Kaya' skin care clinics. Till date it has serviced nearly 10,000 customers and the initial reports have been encouraging. The company plans to take its total tally to about 50 clinics over the next 2 years. The management vision is to achieve revenues of Rs 1 bn from this business over the next 3 years (10% of FY05E revenues). With Marico's international business showing robust growth led by success in Bangladesh, Middle East and other SAARC countries, the contribution of these regions has grown from 7% of revenues in FY02 to 10% in FY04. The exports/overseas business is likely to form over 15% of Marico's consolidated turnover by FY07. 'Parachute' is already the market leader in Bangladesh with over 48% share.
Though Marico has seen recent success in the skin care segment (Kaya Clinics), the Sundari business in the US is likely to be in investment phase over the next few years. To that extent, it will continue to eat into the company's overall profits. Though, both 'Kaya' and 'Sundari' forays could potentially be big growth drivers for the company over the long run, in the initial years, both businesses are likely to depress margins and would require continued capital support.
What to expect?
At the current price of Rs 233, the stock trades at 22 times annualised 9mFY05 earnings and market cap. to sales of 1.5x. Keeping in mind the continuous double-digit turnover growth that the company has been able to maintain since the last couple of years, led by new products and international markets, the valuations look decent. The only sign of concern is the performance of its international business in December quarter. The management's continuous flow of bonuses and dividends is also a sign of shareholder friendliness.
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