ENHANCING INVESTMENT DECISIONS

IN-DEPTH ANALYSIS OF FUNDAMENTALS AND VALUATION

GROUP 6
RINI RAJAN
PRIYANKA KANWAR
ASHISH SHARMA
PRATEEK JAIN
JEEVAN JOSHI



[Pick the date]
EQUITY VALUATION
CORPORATE
GOVERNANCE
MANAGEMENT
EVALUATION
FINANCIAL
PERFORMANCE
BUSINESS PROSPECTS

2


Global economic growth should increase over the next two years with
continuing signs of improvement, according to the United Nations World
Economic Situation and Prospects 2014 (WESP) report. The global
economy is expected to grow at a pace of 3.0 per cent in 2014 and 3.3 per
cent in 2015, compared with an estimated growth of 2.1 per cent for
2013.
The world economy experienced subdued growth for a second year in
2013, but some improvements in the last quarter have led to the UNs
more positive forecast. The euro area has finally ended a protracted
recession. Growth in the United States strengthened somewhat. A few
large emerging economies, including China and India, managed to
backstop the deceleration they experienced in the past two years and
veered upwards moderately. These factors point to increasing global
growth.
While growth in international trade flows is expected to pick up
moderately to 4.7 per cent in 2014, the prices of most primary
commodities are projected to be flat, although any unexpected supply-
side shocks, including geo-political tensions, could push some of these
prices higher.
Developed economies
In the United States, fiscal tightening and a series of political gridlocks
over budgetary issues weighed heavily on growth; however, quantitative
monetary easing boosted equity prices. The U.S. labor market and
housing sector continued to recover. Gross Domestic Product (GDP) in the
U.S. is expected to increase 2.5 per cent in 2014.
Western Europe emerged from recession in 2013, but growth prospects
remain weak, as fiscal austerity will continue and the unemployment
rates remain elevated. GDP in Western Europe is expected to grow by 1.5
per cent in 2014.
Developing countries and economies in transition
Growth prospects among large developing countries and economies in
transition are mixed. Growth in Brazil has been hampered by weak
external demand, volatility in international capital flows and tightening
monetary policy, but growth is expected to rebound to 3 per cent in 2014.
A slowdown in China has been stabilized and growth is expected to
maintain at a pace of about 7.5 per cent in the next few years. India
experienced its lowest growth in two decades, along with large current
account and government budget deficits plus high inflation, but growth is
forecast to improve to above 5 per cent in 2014. In the Russian
Federation growth weakened further in 2013, as industrial output and
investment faltered, and is expected to recover modestly to 2.9 per cent
in 2014. Whereas growth prospects in Africa is robust estimated at 4.7%
in 2014.

GLOBAL ECONOMIC PROSPECTS
COUNTRIES
USA
China
India
S&P
AA+/A-1+
AA-
BBB-
MOODY'S
Aaa
Aa3
Baa3
CREDIT RATINGS
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014
Global GDP
World
Advanced
economies
Developing
countries

3



Over the past one year, in the financial year 2014, the Indian economy is
anticipated to grow at 4.9% as compared to 4.6% in FY 2013 with higher
output in both industrial & agriculture sector and a rebound exports.
However, sluggish growth in consumption and investment weaker the
domestic demand. Main macroeconomic indicators influences the overall
economic conditions of India are as follows: GDP, IIP, WPI and CPI, CAD,
Foreign Trade, FDI
Gross Domestic Product
The Indian economy expanded at a slower rate in Q3 to 4.7% from 4.8%
in Q2 of 2013 due to contraction in growth of manufacturing (1.9%) &
mining (1.6%) sector. The Indian economy will grow by 5.2% in the second
half of fiscal 2014. The economy has grown by 4.6% in the first half and
full year 2013-14 growth estimate is 4.9%. GDP growth for the first two
quarters of fiscal 2013-14 was 4.4% and 4.8%. GDP growth for fiscal 2012-
13 was 4.5%.
Index of Industrial Production
Manufacturing sector mainly contributes to the GDP growth of an
economy, however, services sector replacing the manufacturing position
in terms of contribution in the growth. Finance Minister in his budget
speech mentioned, Manufacturing is the Achilles heel of the Indian
economy. The deceleration in investment in manufacturing is particularly
worrying. Consequently, there is no uptick yet in manufacturing.

Inflation
Wholesale price index and Consumer price index are on decreasing side
from November 2013 onwards, leaves the near term expectations slightly
low, however, core inflation is continue to be a concern
Foreign Trade
Exports declined in H1 2013 due to sluggish global demand. However, it
registered a double digit growth in July (11.64%) and October (13.47%) as
sharp depreciation of rupee supported the growth. Lower Gold demand
declined the total imports of the economy. On the lower imports and
healthy exports, trade deficit got narrowed, helped curb CAD.
Current Account Deficit
Gold imports and crude imports are major factors influencing the current
account deficit in the Indian economy. Three times hike in gold import
duty to 10% in 2013 and other import restrictions curb gold import have
contributed to the improvement in CAD, dropped to 0.9% in Q3 from

OVERVIEW OF INDIAN ECONOMY
FY 2013
0
2
4
6
8
10
2010 2011 2012 2013 2014
GDP
2010
2011
2012
2013
2014

4


4.9% in Q1 of 2013. Further, tighter lending norms, weak domestic
demand and an increase in exports have improved current account deficit
in 2013 to its lowest in three years at -2.6% of GDP from -5.0% in 2012.
Fiscal Deficit
India's fiscal deficit has grown almost four-fold in the last five years.
Government finances are in disarray largely because of a mounting
subsidy and interest payment burden. Fiscal deficit, the gap between
government's expenditure and revenue, stood at 4.5 per cent in FY14,
lower than 4.9 per cent in FY13. To sustainably reduce fiscal deficit from
current levels, the government will have to rely on raising revenues as a
share of GDP. The government has to implement structural tax reforms
such as the goods and services tax (GST), which will lift the government's
tax revenues, lower the cost of doing business and boost growth which
would help in attaining the fiscal deficit of 4.1% in FY15.
Demographics
Demographics of India
Population 1,236,344,631 (July 2014 est.) (2nd)
Growth rate 1.51% (2009 est.) (93rd)
Birth rate 20.22 births/1,000 population (2013 est.)
Death rate 7.4 deaths/1,000 population (2013 est.)
Life expectancy 68.89 years (2009 est.)
male 67.46 years (2009 est.)
female 72.61 years (2009 est.)
Fertility rate 2.44 children born/woman (SRS 2011)
Infant mortality rate 44 deaths/1,000 live births (2011 est.)

Indias Growth Prospects
The infrastructure, consumer products, industrials, technology, media
and telecom (TMT), and life-sciences sectors are set to drive Indias
growth over the next two years. Investors are considering India for both
their services and manufacturing supply chain. With the services sector
forming the backbone of Indias economy, the Indian Government is
placing more weight on strengthening the countrys manufacturing
ecosystem. The global investors are starting to recognize relevant efforts,
with the vast majority expecting India to be a leading manufacturing hub
by 2020. But for that to happen, the environment must be more enabling
and measures on other competitive issues, including currency stability
and ease of doing business, must be implemented.
0
2
4
6
8
2010 2011 2012 2013 2014
Fiscal Deficit
Fiscal
Defecit
3.2
3.4
3.6
3.8
4
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
Unemployment Rate
Unemployment
Rate

5



Fast Moving Consumer Goods (FMCGs) are goods that are consumed in a short span of time and are most
often consumed daily. FMCGs are one of the most important sectors of an economy and are often referred to
as defensives as they comprise the basic day to day needs of the citizens.
The overall fast moving consumer goods (FMCG) market is expected to increase at a compound annual growth
rate (CAGR) of 14.7 per cent to US$ 110.4 billion during 20122020, with the rural FMCG market expected to
increase at a CAGR of 17.7 per cent to US$ 100 billion during 20112025.

Rising incomes and growing youth population have been key growth drivers for the sector. Brand
consciousness has also aided demand. It is estimated that First Time Modern Trade Shoppers (FTMTS) spend
will reach US$ 1 billion by 2015.
The industry has witnessed healthy foreign direct investment (FDI) inflow, as the sector accounted for 3 per
cent of the countrys total FDI inflow in the period April 2000 to October 2013. Organized retail share is
expected to double to 1418 per cent of the overall retail market by 2015.



The Government of India has approved 51 per cent FDI in multi-brand retail, which will boost the nascent
organized retail market in the country. It has also allowed 100 per cent FDI in the cash and carry segment and
in single-brand retail. The government has also amended the Sugarcane Control Order, 1966, and replaced the
Statutory Minimum Price (SMP) of sugarcane with Fair and Remunerative Price (FRP) and the State Advised
Price (SAP). The rural Indias FMCG market will touch US$ 100 billion by 2025.



FMCG INDUSTRY

6


The FMCG sector in India generated revenues worth US$ 34.8 billion in 2011, a growth of 15.2 per cent as
compared to the previous year. Over 2006-11, the sector's revenues posted a compound annual growth rate
(CAGR) of 17.3 per cent. Food products are the leading segment, accounting for 43 per cent of the overall
market. Personal care (22 per cent) and fabric care (12 per cent) are the other leading segments.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector.
Rural demand is set to rise with rising incomes and greater awareness of brands.

The Government of India has been supporting the rural population with higher minimum support prices
(MSPs), loan waivers, and disbursements through the National Rural Employment Guarantee Act (NREGA)
programme. These measures have helped in reducing poverty in rural India and have thus propped up rural
purchasing power.

With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted their purchasing
trend from essential to premium products. In response, firms have started enhancing their premium products
portfolio. Indian and multinational FMCG players are leveraging India as a strategic sourcing hub for cost-
competitive product development and manufacturing to cater to international markets




7


Porters Five Forces
























COMPETITIVE RIVALRY
High Rivalry
Intense price competition
Low exit barriers
Advertisement &
promotional stuff
BARGAINING POWER OF SUPPLIERS
Low bargaining power
Concentration of suppliers
is more
Raw materials readily
available
BARGAINING POWER OF BUYERS
High bargaining power
Availability of substitutes
Concentration and available
Information is more
SUBSTITUTES AVAILABLE
More substitutes available
Low switching cost

THREAT OF NEW ENTRANTS
Threat of entry is high
Easy availability of capital
and raw material


8



Marico Limited is an India-based company founded in the year 1987,
engaged in the business of branded consumer products and services. Its
one of India's leading consumer products companies operating in the
beauty and wellness space. Empowered with freedom and opportunity,
we work to make a difference to the lives of all our stakeholders -
members, associates, consumers, investors and the society at large.
Currently present in 25 countries across emerging markets of Asia and
Africa.
The Company operates in two segments: Consumer Products and Others.
Its Consumer Products include Coconut oils, other edible oils, hair oils and
other hair care products, male grooming products, fabric care products,
healthy foods, soaps, health care products and female beauty care
products. Others segment is engaged in skin care. In India, Marico Limited
manufactures and markets products under the brands such as Parachute,
Nihar, Saffola, Hair & Care, Revive, Mediker, Livon and Set-wet. Maricos
international portfolio includes brands such as Fiancee, HairCode,
Camelia, Aromatic, Caivil, Hercules, Black Chic, Ingwe, Code 10, X-men,
LOvite and Thuan Phat that are localized to fulfill the lifestyle needs of
our international consumers. Charting an annual turnover of Rs. 46 billion
(Financial Year 2012 - 2013) across our portfolio, Marico's sustainable
growth story rests on an empowering work culture that encourages our
members to take complete ownership and make a difference to the
entire business ecosystem.
It is present in Skin Care solutions business under the brand name Kaya in
India and international markets and the brand Derma Rx in Singapore and
Malaysia.
BOARD OF DIRECTORS
Harsh Mariwala, Chairman (w.e.f. April 1, 2014)
Saugata Gupta, Managing Director & CEO (w.e.f. April 1, 2014)
Nikhil Khattau, Chairman of Audit Committee
Hema Ravichandar, Chairman of Corporate Governance
Committee Rajeev Bakshi
Atul Choksey
Anand Kripalu
Rajen Mariwala
B. S. Nagesh


MARICO LIMITED- Make a Difference

9









FINANCIAL ANALYSIS OF MARICO
TOOL - RATIO ANALYSIS


*Note: Other ratios are shown in the annexure 2






0
0.5
1
1.5
2
2.5
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Current Ratio
MARICO
INDUSTRY
0
0.2
0.4
0.6
0.8
1
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Debt/Equity Ratio
MARICO
INDUSTRY
0
1
2
3
4
5
6
7
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Fixed Assets Turnover Ratio
MARICO
INDUSTRY
0
10
20
30
40
50
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
P/E Ratio
MARICO
INDUSTRY
ITC
HUL
NESTLE
DABUR
MARICO
TOP
PLAYERS 284,094.61
1,54,458.63
53,705.94
38,242.32
17,180.14
MARKET
CAP

10


ANALYSIS OF RATIOS
CURRENT RATIO- There has been inconsistent trend in Maricos current ratio and mostly it was below
the standard norm i.e. 2:1 over the past 5 years but they have always been above the industry,
therefore it shows that they can meet their short term obligations easily
DEBT EQUITY RATIO- The above chart shows that there has been declining trend in the industry and
Marico which shows that they are paying off their debts and relying more on the insiders funds
FIXED ASSET TURNOVER RATIO- The chart shows a consistent trend from FY09-FY13 and has always
been above the industry which shows their efficiency in management as well as in operations
P/E RATIO- There has been a substantial increase in the trend of Marico and the industry over the past
5 years which shows that they are contributing towards the wealth maximization of their shareholders.

SWOT ANALYSIS OF MARICO









SWOT
STP
Product Portfolio

11



Valuation is the process of determining the current worth of an asset or company. There are many techniques
that can be used to determine value, some are subjective and others are objective. Discounted cash flow (DCF)
is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses
future free cash flow projections and discounts them to arrive at a present value, which is then used to
evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current
cost of the investment, the opportunity may be a good one.
FCFE DISCOUNT MODEL
The FCFE is a measure of what a firm can afford to pay out as dividends. Dividends paid are different from the
FCFE for a number of reasons -
o Desire for Stability
o Future Investment Needs
o Tax Factors
o Signaling Prerogatives
The various model under this are:
o The Constant Growth FCFE Model
o The Two Stage FCFE Model
o The three Stage FCFE Model
We have valued Marico Ltd. using Two Stage FCFE Model. Between year 2009 and 2014 Marico has been
traded at an average of 159.12 Rs. But over the last one year it has increased on an average of 224.78 Rs.

SOURCE: BSE

Valuation Discounted Cash Flow Technique (FCFE MODEL)

12



This model is designed to value the equity in a firm with two stages of growth,
an initial period of higher growth and a subsequent period of stable growth.

INPUTS TO THE MODEL
Net Income 485.38 (IN INR CR.)
Capex 241.14 (IN INR CR.)
Depreciation 66.6 (IN INR CR.)
Change in non cash WC 14.92 (IN INR CR.)
Net Debt 264.82 (IN INR CR.)
Equity 1360.63 (IN INR CR.)
Dividend Payout Ratio 24.1 in %
R
f
8.76 in %
R
m-
R
f
16.6222725 in %
0.99014579

EXTRAORDINARY GROWTH PHASE


Length of extraordinary growth period 5 (in years)
COST OF EQUITY (K
e
) 25.2184732 in %
Fundamental Growth Rate 27.0759442 in %
STABLE GROWTH PHASE

1
COST OF EQUITY (K
e
) 25.3822725 in %
Growth 5 in %

FCFE CALCULATION = Net Income-(capex-dep)-(Change in non cash working capital)-(New debt Issued-Debt Repayment)
31.1 (In the year 2014)



TERMINAL
VALUE


2014 2015 2016 2017 2018 2019

FCFE 39.5206186 50.22119924 63.81906307 81.09867701 103.0569095 530.9013286 108.2098
Discounting Factor
(K
e
) 31.5613325 32.02950828 32.5046289 32.98679737 33.47611849 172.4534122

PV today = PV of FCFE during high growth phase + PV of Terminal Price
Po=335.0117977


MARKET VALUE AT PRESENT 266.8

Undervalued 266.8 < 335




TWO STAGE FCFE DISCOUNT MODEL
The opportunity for investment seems to be attractive for this stock as it is undervalued and chances
are that it will go up in future, therefore investors should make a buy decision.

13





CONSOLIDATED BALANCE SHEET




APPENDIX
ANNEXURE 1: FINANCIALS

14


CONSOLIDATED PROFIT & LOSS STATEMENT






15






0
0.2
0.4
0.6
0.8
1
1.2
1.4
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Quick Ratio
MARICO
INDUSTRY
0
10
20
30
40
50
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Debtors Turnover Ratio
MARICO
INDUSTRY
0
5
10
15
20
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Gross Profit Ratio
MARICO
INDUSTRY
0
20
40
60
80
100
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
EPS
INDUSTRY
MARICO
*ANNEXURE 2: RATIOS
0
100
200
300
400
500
600
700
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Interest Coverage Ratio
MARICO
INDUSTRY
0
2
4
6
8
10
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
InvestmentsTurnover Ratio
MARICO
INDUSTRY
0
5
10
15
20
25
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
Operating Profit Ratio
MARICO
INDUSTRY
0
10
20
30
40
50
60
70
80
Mar
'09
Mar
'10
Mar
'11
Mar
'12
Mar
'13
FY2009-FY2013
R.O.C.E
MARICO
INDUSTRY

16


















Regression
SUMMARY
OUTPUT

REGRESSION BETA



Regression Statistics

Multiple R 0.493154

R Square 0.243201

Adjusted R Square 0.23738

Standard Error 0.108611

Observations 132


ANOVA

df SS MS F
Significance
F

Regression 1 0.492807 0.492807 41.77618 1.88E-09

Residual 130 1.533527 0.011796

Total 131 2.026334


Coefficients
Standard
Error t Stat P-value Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept -0.00125 0.009903 -0.1262 0.899771 -0.02084 0.018342 -0.02084 0.018342
X Variable 1 0.990146 0.153192 6.46345 1.88E-09 0.687075 1.293217 0.687075 1.293217
ANNEXURE 3: BETA CALCULATION

17


https://www.conference-board.org/data/globaloutlook/
http://www.worldbank.org/en/publication/global-economic-prospects
http://administrator.asiapacific.edu/userfiles/Fundamental%20Analysis%20of.pdf
http://www.mbaskool.com/brandguide/fmcg/1486-marico.html
http://investorsareidiots.com/2014/02/economic-data-analysis-february-2014-can-the-economy-show-5-2-growth-in-
second-half-of-2013-14/
http://www.marketexpress.in/2014/03/overview-indian-economy-2013-2014.html
http://www.moneycontrol.com/news/economy/india39s-2011-12-fiscal-deficit-widens-to-59gdp_711525.html
http://in.reuters.com/article/2014/05/30/india-economy-deficit-idINKBN0EA11620140530
http://www.thehindu.com/business/Economy/fiscal-deficit-lower-at-489-in-201213/article4769686.ece
http://in.reuters.com/article/2011/05/31/idINIndia-57397720110531
http://www.tradingeconomics.com/india/government-budget
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
http://en.wikipedia.org/wiki/Demographics_of_India
http://timesofindia.indiatimes.com/business/india-business/Unemployment-levels-rising-in-India-experts-
say/articleshow/29403619.cms
http://www.ibef.org/industry/fmcg-presentation
https://www.edelweiss.in/Sector/sectordetails.aspx?sector=FMCG
http://in.reuters.com/finance/stocks/companyProfile?symbol=MRCO.BO
http://marico.com/india/investors/performance-at-a-glance
http://reports.dionglobal.in/Actionfinadmin/Reports/FDR0108201343.pdf
http://www.moneycontrol.com/stocks/marketstats/indexcomp.php?optex=BSE&opttopic=indexcomp&index=14







REFERENCES

18