Investment Report: Marico Limited

Submitted By
Group 8 - Sec A
 Overview
Marico Limited is an Indian consumer goods company providing consumer products and services in
the Personal Care – Indian Industry. This Industry is dominated by companies like Godrej Consumer,
Dabur India, Emami, Surya Vinayak etc. This industry accounts for 22% of the country’s fast-moving consumer
goods (FMCG),

The Indian Beauty Personal Care market is expected to grow at a CAGR of 9%, from ~USD 14-15 billion
in 2017 to ~USD 22-23 billion in 2022. The growth has been aided by rising disposable income which
has grown over 35-45% from 2012-2017. With the rising disposable income, demand for enhanced
products and increasing desire to look good of the Indian consumer, presents a golden opportunity
for the beauty and personal care market to grow exponentially in India.

The industry is further categorized into seven major categories – cosmetics, fragrance, men’s
grooming, skin care, bath & shower, hair care and oral care. Specialized categories like cosmetics,
fragrance, men’s grooming and skin care are set to outpace the growth of generic categories and will
hold ~40-45% of the overall market by 2022. Generic categories like bath & shower, hair care and oral
care already enjoy a higher penetration and are mature categories because of which they will witness
slow growth.

Marico Ltd key revenue drivers include Coconut oil business, Value added hair oil business, Healthy
foods business, Male grooming business, Other sources and revenue from other countries.
Product Category wise revenue break up is as follows:
Product Category wise (%)
Revenue Drivers FY'16 FY'17 FY'18 FY'19
6024.45 5936 6333 7334

India Business 77% 77% 78% 78%

Coconut oil 30% 39% 44% 44%

Value added hair oil 21% 28% 26% 26%

Healthy foods 16% 23% 20% 20%

Male grooming 5% 3% 3% 3%

Others 28% 7% 7% 7%

Other Country 23% 23% 22% 22%

Upon taking into consideration CAGR of the specific businesses and inbuilt risks associated such as
the volatility in raw material costs the revenue estimates of the company are as follows.
Estimated Revenue
2019A 2020 E 2021 E 2022 E 2023 E 2024 E

5720.52
2517.03 2894.58 3328.77 3828.09 4402.30 5062.64

1487.34 1712.65 1972.10 2270.86 2614.87 3011.00

1144.10 1321.63 1526.71 1763.61 2037.27 2353.39

171.62 191.99 214.79 240.29 268.82 300.74

400.44 447.98 501.17 560.67 627.24 701.72

1613.48 1697.47 1785.84 1878.81 1976.61 2079.51

7334.00 8266.32 9329.38 10542.33 11927.12 13509.00

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 Risk of the Industry: Copra
Since the revenue if marico is dependant on para which has copra has its constituent45-55
this marico dependent ion the price of copra which has grown at rate of 12.5% cagr in past 5
years.
Percentage weight of copra in material cost Copra= % revenue weight of parachute* %cost of
copra, which came out to be 17.66% on cost of material of Marico Ltd.

COPRA CONSTITUENT IN CAGR

FY 16 FY 17 FY 18 FY 19
COM 2855.56 2765.23 3372 3995
Parachute share (%) 30% 39% 44% 44%
Parachute COM(Rs) 856.668 1078.4397 1483.68 1757.8
Copra Percentage 45.00% 45.00% 45.00% 45.00%
Copra constituent as a part of revenue 385.5006 485.297865 667.656 791.01
Copra constituent as a part of revenue(%) 13.50% 17.55% 19.80% 19.80%

Weight
COPRA 17.66%
OTHERS 82.34%

Beta
Weekly data of the past five years from Sensex index have been considered to calculate beta.

Beta
5 YR 4 YR 3 YR 2 YR 1 YR
0.6101 0.5731 0.7820 0.6497 1.0053

Financial Statements Highlights

Balance Sheet
Revenue Drivers have been calculated by taking the CAGR of the 5 main revenue Drivers of
Marico.
COGS drivers have included the COPRA risk of the industry in cost of manufacturing.

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# FY'16 FY'17 FY'18 FY'19 FY'20 E FY'21 E FY'22 E FY'23 E FY'24 E CAGR
Total income 6117.78 6,033.23 6418 7437 8372.76 9439.38 10656.00 12044.59 13630.39 6.73%
Total expenses 5088.55 4,883.53 5301 6173 7062.55 7826.16 8676.29 9623.54 10679.93 6.65%
Profit before tax from continuing operations 1028.7 1,148.70 1117 1263 1310.20 1613.22 1979.71 2421.04 2950.47 7.08%
Total tax expense 305.37 290 128 360.53 443.91 544.75 666.19 811.88 -25.16%
Total comprehensiive income (A+B) 749.79 792.03 830 1117 1670.73 2057.12 2524.46 3087.24 3762.34 14.21%

Assets FY'16 FY'17 FY'18 FY'19 FY'20 E FY'21 E FY'22 E FY'23 E FY'24 E
Total Non current assets 1274.23 1217.77 1287 1542 1629.2 1743.1 1857.9 1973.8 2091.1
Total current assets 2106.94 2381.75 2794 3200 3434 3839 4348 4983 5565
Total Assets 3381.17 3599.52 4081 4742 5063.23 5582.55 6206.06 6956.65 7656.50
Equity and Liabilities
Total equity 2031.68 2339.02 2555 3010 3361.80 3729.68 4181.07 4733.02 5405.58
Total non current liabilities 35.65 37.89 68 46 28.5 28.5 28.5 28.5 28.5
Total current liabilities 1313.84 1222.61 1458 1686 1673.3 1824.1 1996.9 2195.2 2422.6
Total liabilities 1349.49 1260.5 1526 1732 1701.8 1852.6 2025.4 2223.7 2451.1
Total equity liabilities 3381.17 3599.52 4081 4742 5063.6 5582.2 6206.5 6956.7 7856.7

The net working capital of the company has been projected based on balance sheet projections and
working capital assumptions.
2016 2017 2018 2019 2020 2021 2022 2023 2024
Total Current Asset 2106.94 2381.75 2794 3200 3434 3839 4348 4983 5565

Total Current liability 1313.84 1222.61 1458 1686 1673.30 1824.07 1996.91 2195.17 2422.65

Working Capital 793.1 1159.14 1336 1514 1760.737303 2015.431097 2351.279031 2787.657154 3142.749961

Net increase/decrease 246.74 2015.43 590.54 772.23 791.47

Relative Valuation Method

For comparing Marico Ltd., we have selected top 2 companies above it and top 1 company
below it. There are no other major players in the market.

Total Equity Gr. Blk Sales % of sales Net Profit % of NP

Godrej Consumer 102.23 1,570.88 5,679.31 20.25% 1,748.70 36.39%
Dabur India 176.71 1,774.43 6,273.19 22.36% 1,263.62 26.30%
Marico Ltd. 129.09 798 5971 21.29% 1104.67 22.99%
Emami 45.39 2,817.17 2,483.27 8.85% 305.66 6.36%

Comparing Financials

Key Financials Industry Marico Ltd. Godrej ConsumerDabur India Emami

Sales 29416 7334 5679 6273 2483
Net Profit 4818 1118 1749 1264 306
Equity 540 129 102 177 45
Gross Fixed Assets 8078 798 1,570.88 1,774.43 2,817.17
BV - 27 48 23 46
P/E 42 47.3 42 62.3 46.4
P/BV - 13.75 12.72 19.11 6.84
EPS - 7.9 14.6 6.9 6.7
CMP - 378.6 635 430.4 308.25
For calculating share price for Marico Ltd., we have used P/E ratios of different companies
and industry and multiplied it with EPS of Marico Ltd

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For assigning weights, industry has been given .75 weightage because Marico Ltd. has around
25% share in sales. For peers, Weights has been assigned on the basis of Net Profit.

Share price Marico Ltd. on basis of P/E ratio

Share Price Weights
Industry 330.378 0.75
Godrej Consumer 331.8 0.40
Dabur India 492.17 0.29
Emami 366.56 0.07
Marico Ltd. 297.06

Discounted Cash flow Method

WACC Sheet
Beta 0.61
Risk-free Rate 6.34% (10-Yr govt bond yield)
Equity Risk Premium 6.0% Morgan Stanley

Cost of Equity (Ke) 10.00%

Pre-Tax Cost of Debt 8% Firm Value 16652.18

Tax Rate
After-Tax Cost of Debt
25.35%
6.09%
Debt 349.00

D/E 0.116
D/C 0.104
Cash and Cash
E/C 0.896 Equivalents 552.00
WACC 9.59% Equity Value 16855.18
Terminal Growth Rate 5%
No. of
Outstanding
SHARE PRICE 130.6 Shares
129.09
 After projecting EBIDT upto 2024 and then calculating the fcf/share value, using this
fcf/share value firm value has determined, which has been used to identify the equity
of the firm by formula:
 equity=firm value-debt+ cash & cash equivalents.
 This equity value/ outstanding shares is used to calculate the share price.
 We have determined the terminal growth rate beyond 2024

DDM Valuation

The Dividend per share of the company has been computed by summing up the interim dividend &
final dividend paid by the company in a span of 1 year. Average YOY Growth Rate (38%) has been
used for projecting DPS. DPS Projection has been done till FY 2024 and a Terminal Value has then
been calculated using WACC (11.72%) & Long-term growth rate of Indian Economy (5%).
The Projected DPS & the Terminal Value have then been discounted using WACC (11.72%) to come
up with the PV of DPS. The Sum of Present Value of DPS leads us to the Share Price of Marico Using
DDM Valuation Techniques i.e. Rs. 224.5.

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 Recommendation
Recommendation
The Final stock price has been calculated by giving 50% weightage to DCF and Relative valuation
methods. Thus a Buy recommendation is rendered

# Weightage Price
Discounted Cash Flow 0.5 130.6
Relative Valuation 0.5 297.06
Target price 213.81
Current Market Price 378.6
Recommendation Sell