Marico Ltd is one of India’s leading consumer goods companies operating in the global beauty and wellness space. During FY20, Marico recorded a turnover of Rs 7,310 crore through its products sold in India and chosen markets in Asia and Africa. 

Marico touches the lives of 1 out of every 3 Indians, through its portfolio of brands such as Parachute, Saffola, Saffola FITTIFY Gourmet, Hair & Care, Parachute Advanced, Nihar Naturals, Mediker, True Roots, Kaya Youth O2, Coco Soul, Revive, Set Wet & Livon. The International business contributes to about 22% in FY20 of the Group’s revenue, with brands like Parachute, Parachute Advanced, Hair Code, Fiancée, Caivil, Hercules, Black Chic, Code 10, Ingwe, X-Men, Sedure, Thuan Phat and Isoplus. 

Marico has a primary presence in India and select emerging markets in Asia and Africa and exports its products to markets in the Indian-sub continent such as Nepal, Bhutan, and Sri Lanka as well as Indian diaspora markets across the globe. 

Marico has been successful in building scalable business in Bangladesh (organic) and Vietnam which was acquired in the year 2011, and is capable of consistently delivering double-digit constant currency growth over the medium term. In Bangladesh, the company continues to diversify beyond Coconut Oil on the back of its scale, brand equity and distribution strength. In Vietnam as well, the company has forayed into female grooming to broaden the offering beyond the male grooming and ethnic foods.

In India, the company has achieved its dominant market leadership in the coconut oil, value-added hair oil, and super-premium refined edible oil categories over the years driven by innovation, superior product proposition, brand building, and distribution strength. As these categories continue to offer significant headroom for growth, the company aggressively drives conversion from unbranded to branded as well as penetration at the bottom of pyramid backed by judicious pricing, sustained investment behind innovation, and brand building. 

With rising incomes and the expansion of the middle class and high-income segments, consumers in India have shown a growing inclination to premium and functional offerings that suit their lifestyles and address unsatisfied modern needs and aspirations. As this trend reshapes future consumption, Marico has been driving premiumisation across its portfolios, which has been further aided by the emergence of the channels of modern trade and e-commerce.

The company has identified Premium Hair Care, Healthy Foods, Male Grooming, and Premium Skin Care as potential new engines of growth. With a visible step-up in product launches, a healthy innovation pipeline, and the core delivering stable growth, these categories could provide a significant boost to the growth.  

Innovation is a key substance for growth in the fast-paced and dynamic business environment and thus Marico has ramped up its new product development efforts by refining and streamlining its processes and is making concerted attempts towards offering unique consumer propositions. 

The company is renewing its efforts toward improved in-store execution and enhancing its presence in salons, pharmacy chains, cosmetic outlets, standalone open format outlets, and specialty food outlets. In rural areas, the aim is to strengthen infrastructure and expand direct reach which will prove to be a source of competitive advantage for organized players in the long run. 

As the people move towards the digital age and automation, Marico has increased its focus on digital initiatives to improve customer engagement, drive sales through e-commerce and build data analytics capabilities for faster and efficient decision making across the value chain. In sales and distribution, it is leveraging digital technologies that enable automation to improve resource allocation and enhanced sales productivity. 

With structural changes in the business environment due to the COVID-19 outbreak, Marico is focusing on the key aspects in the near term like launching of products catering to nutrition and hygiene due to shift in consumer behavior, focus on e-commerce channel and modern trade due to disruption in the supply chain, reallocate spends from non-media to media channels to scale up the e-commerce channel and aggressively focusing on cost management.

Given the heightened need of hygiene and sanitation among consumers, Marico has launched Mediker hand sanitizer and Veggie Clean, a fruit and vegetable cleaner in India in April 2020. Distribution of the hand sanitizer is being ramped up across all channels, whereas Veggie Clean will be available across modern trade and e-commerce channels. New launches will continue to do well and will further broaden Marico’s scope in the hygiene segment for long-term sustainability in performance. 

According to the management, due to a sudden increase in in-house consumption and out-of-home consumption expected to remain lower in the coming quarters, Saffola and food products will continue to perform well in the coming quarters while Parachute and VAHO are expected to remain soft in the near term and would witness gradual recovery by second half of 2020.

Marico had a Healthy compounded annual growth of 10% over 5 fiscals through 2019, which was better than its peers, and was driven by increasing rural reach by 32% FY19, better than industry growth in key segments such as coconut oil, healthy foods and contribution of new product launches. 

Complementing the strong market position is steady improvement in operating efficiency reflected in healthy operating margin of 17.3% and return on invested capital (ROIC) of 32.6% in FY20. Raw-material prices, including copra prices and other edible oil prices, are expected to remain benign in the near term and will, thus, help support the company’s margins. 

If you look at the last 5 year performance, Marico has continued to sustain the revenue and PAT growth with improvement in EBITDA margin and has a healthy cash flow. Though FY21E is expected to be a disruptive year, the company is focusing on delivering double-digit revenue growth in the near to medium term by launching new products in health and hygiene categories, different distribution model for urban markets, and increased direct distribution in rural markets.

Key Risks: 

  • Slowdown in key product categories would affect overall demand and revenue growth
  • Exposure to intense competition in the FMCG industry
  • A significant increase in prices of key raw materials would affect profitability and earnings growth 

Final Thoughts:

The sustenance of lockdown in April-May would continue to impact the supply of products in the domestic market. Marico is currently producing at 70-80% capacity utilisation, but its distributors are performing at lower capacity due to stringent lockdown norms and less availability of manpower. 

The company has revamped its growth strategies with focus on providing value preposition to consumers in existing categories, launching new products in the health and hygiene categories, enhancing the direct distribution reach in the rural market, and stringent cost-saving initiatives, which would help to achieve double-digit earnings growth in the medium term. 

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