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Marico: Annual report extracts - Views on News from Equitymaster
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Marico: Annual report extracts
Aug 19, 2009

Marico was one of the fastest growing Indian FMCG companies in FY2009. The growth was almost entirely organic with volumes growing by 12%. Consolidated sales for the company increased by 25% to Rs. 24 bn. Bottom line increased from Rs.1.7 bn to Rs.1.9 bn, an increase of 11.6%. In FY08, the company sold its SIL jam unit and made a profit of Rs. 106 m while in FY09, the company booked a onetime loss of Rs. 150 m on its Sundari business. Adjusting for onetime items, the PAT growth for FY09 was 28 % YoY.

Parachute and Nihar
Volumes of rigid packs of Parachute oil grew by 9% YoY in FY09 while Nihar grew by 11% YoY. The market share for Parachute was maintained at 48% while the market share for Nihar stood at 6%.

The brand Saffola grew by 11% YoY in FY09. Saffola suffered from slow growth in 2HFY09 due to a large premium of the brand to other refined edible oils in the market and down-stocking of all inventory levels by modern traders. In anticipation of lower average safflower price, the company took price cuts reducing the differential between Saffola and other brands. The results have been encouraging as the franchisee grew by 14% YoY in 1QFY10. Safflower is a hardy crop that grows in arid and poorly irrigated areas. With the general failure of the monsoons, we may see more farmers switching to such alternative crops thereby lowering the price of safflower even further.

Hair Oil
Marico's hair oil franchisee in rigid pack grew 17% YoY with the market share climbing up to 22%. This growth was achieved on the back of micro marketing and new launches.

Male Hair Grooming
This category which comprises hair creams and hair gels grew by 6% YoY in volume. The market share of this category in February 2009 was 19%.

International Business
Marico draws a majority of its international sales from Bangladesh, Middle East, North Africa and South Africa. The international business which contributes 19% of Marico's sales grew by 43% YoY. Amongst the various geographies, sales in Bangladesh grew on the back of advertisement campaigns, affordable price points driving conversion from loose to branded oil and leveraging of on-ground opportunities such as weekly markets.

In the Middle East, the company's products have been steadily increasing their market share while Marico has commenced the process of entering new countries.

Marico's performance in Egypt had been negatively impacted due to the company's decision to modify its distribution structure. The company moved from servicing several wholesalers to dealing with them through a distributor. The company also suffered due to high inflation in Egypt which put pressure on business growth. However, now that the transition is complete and the inflation is down to more reasonable levels, the company in Q1FY10 conference call stated that growth in Egypt is back to a normalised number.

During FY09, Kaya achieved sales of Rs. 1.6 bn and a YoY growth of 57%. 20 new clinics were added in FY09 which contributed to the revenue. Existing clinics recorded a growth of 10% during the year, which brought down the YoY growth for the year to 18%. The company made a loss at net profit level due to new clinics being opened during the year. The company is still experimenting with the model of Kaya Life before a full-fledged launch.

New products launched in FY09
Brand Product Price Point
Parachute Advanced Hot Oil Hair Oil Rs.65 for 170 ml
Saffola Zest Food Rs.10 - Rs.45
Saffola Rice Food Rs. 59 for 1 kg and Rs.140 for 2.5 kgs
Revive Strong &White Fabric whitener -

Raw material
In FY09, Marico saw increase in two of its main raw materials. Copra, which comprises 40% of raw material for Marico was up by 25% YoY and safflower which comprises 13% of raw material costs was up by 35% YoY.

In the light of Marico's 1QFY10 results, falling raw material prices benefited the company in the form of expanding margins. Furthermore, the company invested savings from the falling raw material prices in brand building and this resulted in further volume growth. We believe that in the domestic market, the company has long term growth prospects. In the international market, while the company has been successful in acquiring new companies, the challenge lies in successfully assimilating them. While the margins are higher in the international business, the company spends some time in finding its feet as each new country has its own nuances. Hence it has to spend some time perfecting its business model and investing behind the brands before it can start reaping the profits. Moreover, sooner or later, it will have to start competing directly with the big boys in the business.

Marico has sufficient Kaya clinics on the ground now. Hence, opening new clinics should not push the bottom line into red. Kaya is expected to contribute positively to Marico's bottom line this year on. However, the Kaya comes under discretionary category spending and hence faces risk in a slowdown.

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