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Marico: Good investment?
Mar 30, 2010

Marico is a leading Indian Group in Consumer Products & Services in the Global Beauty and Wellness space. The leading brands in Marico’s portfolio are Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Manjal, Kaya, Aromatic, Fiancée, HairCode, Caivil and Black Chic. The company has its operations in the Middle East, Bangladesh and other SAARC countries, Malaysia, South Africa and Egypt. Marico recently acquired Code 10, a hair care company in Malaysia from Colgate Palmolive. We herein do a SWOT analysis of Marico’s business and analyse what potential and risks lie ahead for the company. Strengths
Paradigm shift: Marico has traditional been considered a hair oil company with Parachute hair oil as its flagship brand. However, parachute, which made up 70 – 75% of sales in the early 90s made up only 33% in FY09. This is a result of several new launches as well as acquisitions as a result of the company’s effort to de risk its product portfolio and provide growth drivers.

Health platform: The company describes itself as a health and wellness company. Marico in the last few years has moulded its product offering to position itself on this platform. Whether it is Saffola cooking oil, Saffola cholesterol management atta mix or Kaya Life, the company is positioning its products to offer a healthy lifestyle. With the Indian population becoming increasingly health conscious, these products will help the company drive growth.

Weakness
Benign growth: The management of the company has indicated that the growth recently seen is unlikely to sustain. This is because of high growth seen in the last 2 years resulting in a high base effect. Management is targeting 10-11% growth in the coming few quarters.

Opportunities
Demographic profile: The Indian sub continent has a population of over 1 billion and the median age is in the mid 20s. This provides Marico with a huge customer base which is health conscious and wants to look well groomed.

Rise of rural economy: The economic scenario in rural India has undergone a sea change in recent times. Higher MSP for produce, farm loan waiver and rural guarantee scheme have lead to a spurt in living standards in rural India. Low penetration levels and increase in spending power has provided an opportunity for companies to grow.

Threats
Economic slowdown: Kaya is a discretionary brand. This means that in case of an economic slowdown, the brand may suffer. This has been seen recently when the 3QFY10 sales of Kaya Skin Clinic fell by 9% over 2QFY10 while the sales of same clinic fell by 13% over the same period.

Input costs: Raw material makes up about 47% of Marico’s net sales. Inflationary pressure tends to directly put pressure on cost of raw material and put pressure on operating margins.

What lies ahead...
At a price of Rs 109, the stock is trading at 23 times our estimated FY12 earnings. While the company has got a solid management team and great products, we believe that at the current price levels the stock looks expensive.

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