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Oil's Well - Views on News from Equitymaster
 
 
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  • Dec 6, 1999

    Oil's Well

    • Marico is the market leader in the Indian coconut oil and branded refined oil segment. Its brand Parachute dominates the Rs 7 bn branded coconut oil market with a 54% market share. Marico's presence in the refined oil category is marked by two brands, namely, Saffola (safflower oil) and Sweekar (sunflower oil). These command a combined market share of 17% of the Rs 12 bn branded edible oil market.

    • Marico's Hair & Care is the No.2 brand commanding 27.9% of the Rs 800 m non-sticky hair oils market. Marico has also launched several variants under its Parachute brand name. Parachute Lite holds 8.6% market in the value added coconut oils market and competes directly with Dabur's Vatika.

    • Marico's Revive dominates the branded starch category in the niche fabric care segment, which is growing at about 5-10%. Marico also has a presence in the processed food segment with Sil range of jams (10% market share).

    • Marico has a well-established distribution network of 600,000 retail outlets covering 18 m households. This has helped it leverage marketing and distribution tie-ups with Indo Nissin Foods (for Top Ramen range of instant noodles - 21.4% market share in February 1999).

    • Marico has also tied-up with Procter & Gamble for purchase and distribution of Clearasil, Old Spice, Pampers, Camay and Ariel detergent bar (turnover valued at over Rs 500 m in FY99).

      Latest results

    • In FY99, raw/refined oils and hair oils contributed Rs 5 bn (94%) to Marico's turnover. The company's leading brand Saffola was affected by a raw material shortage due to a crop failure. Low priced competitor products forced it to drop prices of Parachute by about 18% in the first quarter, though the third quarter saw prices being raised by about 6%. The 12.5% growth in turnover in FY99 was primarily due to value growth in refined oils and Hair & Care.

    • The Revive brand contributed Rs 15 m (0.3%) to Marico's FY99 turnover. During the year, the company extended the Revive brand by introducing Revive Colourfix.

    • In April 1999, Marico further strengthened its hair-care portfolio by acquiring Mediker (an anti-lice treatment shampoo) from Procter & Gamble India. Mediker with a turnover of Rs 80 m has an absolute monopoly in its category.

      Things to come

    • Focus on value addition through line extensions of existing brands and increasing product portfolio through acquisitions. Marico recently entered the hair-grooming segment with Parachute Nutri-Sheen cream and liquid. It also entered the processed food segment in a major way by launching Saffola Salt and Atta (flour).

    • Marico's tie-up with Proctor & Gamble will not only generate additional fee based revenues but also build a wider and cost effective distribution reach.

    • The acquisition of Mediker will give Marico a chance to extend its distribution reach to chemist outlets and also to apply for registration of the Mediker brand in some Middle-East countries and Sri Lanka and Bangladesh.

    • The company is focussing on further developing its distribution competency by covering most 100,000 plus population towns. To achieve this, it spent Rs 217 m in FY99 (up 18.5% over FY98) towards distribution expenses (roughly 4% of FY99 turnover).

    • Repositioning and repackaging products with an eye on the rural market. Marico has spent Rs 390 m (7% of FY99 turnover) as advertisement and sales promotion costs to maintain its market shares and give its products a rural thrust.

      Concerns

    • Bombay Oil Industries-BOIL (a group company) owns the Parachute and Saffola brands. Marico pays a royalty for using these brand names. Brand extensions however, do not attract any royalty payment. Marico is authorised to use these brands till the promoter holding reduces to below 25%. The promoters (Mariwalas) currently hold 63% stake in the company.

    • Marico operates four manufacturing units. Of these, 3 are its own and one is leased from BOIL. It pays a licence fee of Rs 3.6 m per annum to BOIL for use of this plant.

    • The key raw materials for Marico - copra and other oil seeds (safflower and sunflower) are commodities, which have high price volatility. The company's raw material cost is as high as 59% of sales.

    • Supply of raw materials is also constrained by high dependence on climatic conditions for better crop yield. As stated above, in FY99, volumes of Saffola declined by 15% due to unavailability of safflower crop on account of unseasonal winter rains.

     

     

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