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Marico: Expanding its turf… - Views on News from Equitymaster
 
 
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  • Aug 24, 2002

    Marico: Expanding its turf…

    In late 1999 when FMCG major, Hindustan Lever (HLL) acquired ‘Cococare’ (a coconut oil brand) from Recon Oil, many began to feel that Marico Industries’ days as market leader in this segment were numbered. After all, who could forget the heat HLL generated in oral care to put Colgate on the defensive.

    Three years down the line and Marico’s brand ‘Parachute’ is still the No. 1 brand in coconut oil. It still commands over 55% of the Rs 5 bn branded coconut oil market. What’s more, the company has launched brand extensions of ‘Parachute’ that command nearly 20% of the value added coconut oils.

    In 1990 Marico was predominantly dependent on ‘Parachute’. However, in a bid to reduce its dependence on this single brand Marico introduced new products during last 3-4 years. Consequently, Parachute’s share in the topline has come down from 70-75% in the 1990’s to less than 40% currently. The new products on the other hand, currently contribute over 10% to the turnover. Despite this, ‘Parachute’ continues to be the world’s largest packaged coconut oil brand using one out of every ten coconuts produced in India.

    But Marico is not all about ‘Parachute’. The company has 8 other brands, which are market leaders in their own category. With significant market shares, these brands and their extensions occupy leadership positions in almost all categories in Nature Care (coconut oil, value-added hair oil, anti-lice treatment, fabric care) and Health Care (refined edible oils, low sodium salt, processed Foods). These include Saffola, Sweekar, Hair & Care, Shanti, Mediker, Revive, Oil of Malabar and Sil.

    Brands Category Market Share % Brand Rank in Industry
    Parachute, Oil of Malabar Coconut Oil 55-56 1
    Revive Fabric Starch nearly 100 1
    Mediker Anti Lice Treatment nearly 100 1
    Saffola, Sweekar Refined Edible Oil in consumer packs 12 to 13 2
    Hair & Care Non-Sticky Hair Oil 21 to 22 2
    Parachute Extensions Value Added Coconut Oils 11 to 21 3
    SIL Jams 7 to 8 2
    Shanti Amla Hair Oil 9 to 10 3

    Source: Marico’s 1QFY03 release

    Apart from brand extensions and new product introductions, Marico has also looked at other markets for growth. A couple of years back Marico formed Marico Bangladesh Limited (100% subsidiary). Parachute, the flagship brand of Marico commands a market share of about 25% in Bangladesh and is on top of the order in terms of market share as per the company’s release. Marico also exports to the Gulf countries and the US. What’s more, it also distributes products of other companies through its strong distribution channel for a fee. Indo Nissin Food’s ‘Top Ramen’ noodles are marketed and distributed by Marico. The company also has a tie up with P&G for marketing of Clearsil, Pampers, Old Spice, Ariel detergent bar and Camay.

    All this has left an imprint on the company’s financials too. In the last six years the company’s topline has grown at 10% CAGR and bottomline by 17% CAGR.

    (Rs m) FY97 FY98 FY99 FY00 FY01 FY02 CAGR%
    Sales & Services 4,100 4,900 5,510 6,500 6,707 6,957 10
    Net Profit 220 300 380 360 458 501 17
    Annualised EPS (Rs) 14 21 26 25 32 34 19
    Book value per share (Rs) 55 68 83 98 118 136 20
    ROCE % 35 41 42 33 33 32  

    In 1QFY03, the company reported over 19% topline growth and nearly 16% bottomline growth (consolidated numbers). The strong growth in topline numbers has come about due to a hike in MRP prices, post strengthening of commodity prices. The company actually saw an overall volume growth of 9% YoY during the quarter.

    The company continues to be a zero debt company (i.e. it doesn't have interest bearing debt). Enthused by this performance the management recently gave out a bonus issue (1:1). Added to that, the company also has plans to issue preference shares (at 1:1) on the enhanced capital.

    Marico’s strategy for growth going forward is to convert consumers from loose to packed oils through low cost packs, small unit packs, product/packaging innovation and increased rural penetration. It is also looking at continuous growth of its international business, which currently forms 6% of its turnover. Backed by these strategies, Marico is targeting 10-12% topline growth, 15-18% bottomline growth and maintaining ROCE in the range of 30-35% going forward.

    Distribution stats…
      Urban Rural Total
    Sales Territories 150 30 180
    Towns Covered (000's) 3.1 12.3 15.4
           
    Distributors 850 - 850
    Super Distributors - 120 120
    Stockists - 2,500 2,500
           
    Retail Outlets - Direct Reach (‘000’s) 310 220 530
    Retail Outlets - Indirect Reach (‘000’s) 400 620 1,020
    Total… 710 840 1,550
    * Source: Company release

    Despite the stunning numbers, dominance in the market place as well as pro-active strategies, the company’s stock trades at a P/E of 9x FY02 earnings. One reason for this could be that the management of the company is family run and secondly, there is expectation that commodity prices are in for an upswing, which could impact the company’s margins going forward. Also, with the FMCG sector in general facing a downturn, the stock seems to be mirroring the sentiment. But one thing is for sure: the company that could hold its own against a competitor like HLL will be no pushover going forward.

     

     

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