Marico 1QFY15 results ahead of expectations; buy - Motilal Oswal

4 August 2014

1QFY15 Results Update | Sector: Consumer

Marico

Gautam Duggad ([email protected]); +91 22 3982 5404

Manish Poddar ([email protected]); +91 22 3027 8029

BSE SENSEX S&P CNX CMP: INR257 TP: INR300 Buy 25,723 7,684

Bloomberg MRCO IN

Equity Shares (m) 644.9

M.Cap. (INR b) / (USD b) 165.5/2.7

52-Week Range (INR) 269/190

1, 6, 12 Rel. Per (%) 4/-8/-9

Financials & Valuation (INR Million)

Y/E MAR 2015E 2016E 2017E

Net Sales 55,977 65,348 75,450

EBITDA 8,501 9,894 11,413

Adj PAT 5,674 6,601 7,650

Adj.EPS(INR) 8.8 10.3 11.9

Gr. (%) 9.1 16.3 15.9

BV/Sh (INR) 33.9 41.6 50.4

RoE (%) 29.4 27.2 25.8

RoCE (%) 31.0 29.7 28.6

P/E (x) 29.2 25.1 21.6

P/BV (X) 7.6 6.2 5.1

Marico’s 1QFY15 results were ahead of expectations led by strong value growth in Parachute on account of aggressive price hikes to pass Copra price inflation. Consol Net sales grew 17.4% to INR 16.2b (est. INR16.3b). Adjusted for Kaya demerger, like to like growth in consol revenues stood at 25% (5% volume growth) while domestic revenues grew 28% (6.5% volume growth).

Gross margin contracted 640bp YoY to 45% (est. 48%) primarily due to RM inflation in copra. Savings on account of staff costs (down 240bp YoY to 5.3%), other expenses (down 290bp YoY to 11.6%) and ad spend (down 90bp YoY to 11.9%) resulted in EBITDA margin contraction of modest 30bp to 16.2% (est. 15.2%). Thus, EBITDA grew 15.8% to INR2.6b (est. INR2.5b). Despite higher tax rate (up 200bp YoY to 26.3%) PAT grew robust 19.3% YoY to INR1.85b (est. 1.6b); 17% higher vs. our estimates.

Domestic volumes and revenues grew 6.5% and 28% respectively, led by Parachute (6% volume and 41% value), Saffola (up 10% and 14%) and Value added Hair oils (11% and 28%). Marico has taken further 19% price hike in Parachute with cumulative price hike totaling 33%. Youth business revenues were flat on account of high base (40% growth in 1Q14).

International Business posted 16% revenue growth with constant currency growth of 9.6%. Bangladesh, MENA and South Africa posted 14%, 18% and 9% growth respectively. International margins expanded ~500bp to 18.2%.

Con-call takeaways: 1) Medium term strategy-2x revenues in four years. 2) Expect gradual pick-up in growth in 2H15 led by urban revival. 3) EBITDA margins should compress in next two quarters due to RM inflation.

Maintain Buy: We are revising our estimates upwards by 3-5% to factor in 1Q15 beat and lower tax rates (28% vs. 30% earlier). Notwithstanding near term margin challenges due to Copra inflation, we believe Marico is well placed to capitalize on the potential urban recovery post elections. We maintain Buy rating on the stock with a target price of INR300.

Quarterly PerformanceY/E March FY14 FY15E Est. Var.

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 1Q (%)Domestic organic vol gr (%) 10.0 4.0 3.0 6.0 6.5Net Sales 13,797 11,154 11,984 10,698 47,632 16,192 13,161 14,141 12,483 55,977 16,280 -0.5% YoY Change (%) 8.9 -3.5 3.0 7.3 3.9 17.4 18.0 18.0 16.7 17.5 18.0COGS 6,710 5,594 6,206 5,597 24,107 8,911 6,975 7,424 6,174 29,484 8,466 5.3%Gross Profit 7,086 5,560 5,778 5,101 23,525 7,281 6,186 6,717 6,309 26,493 7,814 -6.8%

Gross margin (%) 51.4 49.8 48.2 47.7 49.4 45.0 47.0 47.5 50.5 47.3 48.0Other Expenditure 4,816 3,905 3,783 3,581 16,085 4,654 4,343 4,426 4,569 17,992 5,340 -12.8%

% to Sales 34.9 35.0 31.6 33.5 33.8 28.7 33.0 31.3 36.6 32.1 32.8EBITDA 2,270 1,655 1,995 1,520 7,439 2,628 1,843 2,291 1,740 8,501 2,475 6.2% Margins (%) 16.5 14.8 16.6 14.2 15.6 16.2 14.0 16.2 13.9 15.2 15.2

YoY Change (%) 23.5 11.4 23.6 26.6 16.6 15.8 11.4 14.8 14.5 14.3 9.0Depreciation 206 168 207 215 796 204 205 217 201 826 244 -16.6%Interest 121 104 73 68 365 70 98 69 76 314 103 -31.5%Other Income 167 158 204 151 679 222 190 245 167 823 200 11.2%PBT 2,109 1,541 1,918 1,388 6,957 2,576 1,729 2,249 1,630 8,184 2,327 10.7%Tax 512 431 501 281 1,572 678 484 630 499 2,291 698 Rate (%) 24.3 27.9 26.1 20.2 22.6 26.3 28.0 28.0 30.6 28.0 30.0Minority Interest 44 52 63 28 187 44 57 70 47 219 48Adjusted PAT 1,553 1,059 1,354 1,080 5,198 1,853 1,188 1,549 1,084 5,674 1,581 17.2% YoY Change (%) 23.5 23.3 32.3 50.0 34.7 19.3 12.2 14.5 0.4 9.1 1.8E: MOSL Estimates

(INR Mill ion)FY15FY14

Investors are advised to refer through disclosures made at the end of the Research Report.

4 August 2014 2

Marico

Sales in-line; Parachute drives value growth Consol net sales grew 17.4% to INR16.1b (est. INR16.3b) with an underlying 5%

volume growth. Excluding Kaya (Demerged), like to like revenues grew 25%. Domestic sales posted 28% growth with an underlying 6.5% volume growth while International sales grew 16% in reported terms and 9.6% in constant currency.

Domestic volumes posted 6.5%, driven by Saffola (up 10%) and Value added Hair oils (11%) while Parachute posted a moderate 5% growth. Standalone gross margins contracted 590bp YoY due to sharp 131% YoY inflation in copra prices.

Rural growth (33%) continued to outperform urban growth (25%) while modern trade (9% of domestic revenues) registered strong 27% YoY growth.

Saffola posted second consecutive quarter of double digit volume growth; VAHO back in double digits Volume Growth % 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Parachute Rigid

10.0 10.0 13.0 11.0 18.0 9.0 6.0 5.0 4.0 1.0 2.0 10.0 6.0

Saffola

15.0 11.0 15.0 3.3 12.0 6.0 4.0 5.0 10.0 7.0 9.0 11.0 10.0 Hair Oils

32.0 26.0 20.0 17.5 25.0 20.0 30.0 24.0 16.0 15.0 8.0 5.0 11.0

Domestic Business 14.0 14.0 16.0 10.3 16.0 14.0 9.0 8.0 10.0 4.0 3.0 6.0 6.5

Source: Company, MOSL

Financials (Ex Kaya): Like to like consol. revenue growth of 25%

1QFY14 1QFY15 % gr FY13 FY14 % gr

Consolidated

Net Sales 12,930 16,190 25.2 42,480 46,760 10.1

Inc/dec in stock (740) (730) (1.4) 1,240 (450) (136.3)

Raw materials (5,580) (7,860) 40.9 (21,770) (22,420) 3.0

Purchases (300) (320) 6.7 (1,160) (1,110) (4.3)

COGS (6,620) (8,910)

(21,690) (23,980)

Staff Cost (730) (850) 16.4 (2,630) (2,850) 8.4

Adv & Sales Promotions (1,700) (1,920) 12.9 (5,710) (5,610) (1.8)

Other Expenditure (1,700) (1,880) 10.6 (6,550) (6,930) 5.8

Total Costs (10,750) (13,560) 26.1 (36,580) (39,370) 7.6

EBITDA 2,180 2,630 20.6 5,900 7,390 25.3

OPM% 16.9% 16.2%

13.9% 15.8%

Other Income 170 220 29.4 560 680 21.4

Depreciation (160) (200) 25.0 (620) (770) 24.2

EBIT 2,190 2,650 21.0 5,840 7,300 25.0

Interest (100) (70) (30.0) (500) (340) (32.0)

PBT 2,090 2,580 23.4 5,340 6,960 30.3

Minority Interest (40) (40)

(100) (190)

PBT after Minority Interest 2,050 2,540 23.9 5,240 6,770 29.2

Provision for tax (500) (680)

(1,420) (1,900)

Adjusted PAT 1,550 1,860 20.0 3,820 4,870 27.5

Exceptional items (net of tax) 0.0 0

520

PAT (reported) 1,550 1,860 20.0 4,340 4,870 12.2


4 August 2014 3

Marico

Parachute (rigid packs): Parachute posted volume and value growth of 6% and 41%, respectively. Given the rise in copra prices (up 131% YoY and 22% QoQ) the company has taken 19% price hike in Parachute in Q1FY15 with cumulative price hike totaling 33% YoY. As expected, Marico is benefitting from inflationary RM environment in Copra as smaller players cede space unable to cope with rising working capital requirement (market share increased 30bp YoY to 56%). Non-rigids portfolio witnessed de-growth in the quarter on account of RM inflation and company maintaining minimum threshold of margins. Management has guided for 7-8% volume growth in medium term.

Domestic volumes up 6.5%

Source: MOSL, Company

Parachute volumes growth at 6%


Reported sales improved 17.4% in 1Q; LTL sales up 25%


Coconut oils market share improved 30bp YoY


Saffola reported 10% volume (second consecutive quarter of double digit

volume growth) and 14% value growth in 1Q15 and witnessed a share decline of 300bp YoY to 55% for 12 months ending June’14. RM dynamics for Saffola was relatively favorable with 24% YoY decline in Kardi Oil and 12% inflation in Rice Bran. Saffola Oats market share stood at 17% and company has launched two near flavors – Sweet with Fruits- to add to the existing six savory flavors (51% share in flavored oats).

16 15 15

5

14 14 13

17 16

10 9 810

4 36 6.5

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Domestic Volume growth (%)

14

10

5 5

10 1013

11

18

96 5 4

1 2

10

6Ju

n-10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Parachute Volume growth (%)

10,4

14

9,67

4

10,5

00

9,09

4

12,6

72

11,5

59

11,6

40

9,97

3

13,7

97

11,1

54

11,9

84

10,6

98

16,1

92

31.824.7

28.421.7 21.7 19.5

10.9 9.7

8.9

-3.53.0

7.3

17.4

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sales (INR m) Sales Growth (%)

53.1

53.3

53.9

55.2

54.9

57.2

58.0

57.6

55.7

56.0

56.0

56.0

56.0

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

Coconut Oils (%)

4 August 2014 4

Marico

100bp share gain YoY in VAHO to 28%


Saffola shares declined 300bp YoY to 55%


Value-added hair oils recovered and posted double digit volume growth after

two quarters (11% volume and 28% value growth). - Marico continues to grow faster than the market and has gained 100bp

market share in the VAHO category. The company’s VAHO portfolio now has four brands with sales of more than INR2b each.

- Nihar Shanti Amla gained 300bp in share to 30% of the Amla sub-category.

Skin Care & Youth portfolio - Summer variant of Body Lotions (category size of INR9.5b with below 20%

penetration level) posted healthy growth with Parachute Advansed Body Lotion having a 6% market share.

- Youth portfolio posted flat performance on account of high base (40% growth). Set Wet gels and Livon serums gained market share while Deodorants portfolio (Set Wet and Zatak) maintained shares at 5% during 1Q15. The management expects to get back to 15-20% revenue growth in couple of quarters.

EBIDTA margin contracted 30bp; gross margins down sharp 640bp Gross margin contracted 640bp YoY to 45% (est. 48%) primarily due to RM

inflation in copra. We believe Marico benefitted from relatively lower consumption costs in 1Q15 due to low cost inventories. Management, during conference call highlighted the pressure on RM front and hence a possibility of margin compression in next two quarts.

Savings on account of staff costs (down 240bp YoY to 5.3%), other expenses (down 290bp YoY to 11.6%) and ad spend (down 90bp YoY to 11.9%) resulted in EBITDA margin contraction of modest 30bp to 16.2% (est. 15.2%). Thus, EBITDA grew 15.8% to INR2.6b (est. INR2.5b). Management has guided for domestic EBITDA margins in 17-18% band as it strives to drive volume growth while maintaining margins in a band.

For the quarter depreciation was lower by 1.1%, interest cost declined 41.8% YoY and other income grew 33% YoY. This drove 24.7% YoY PBT growth to INR2.57b.

Despite higher tax rate (up 200bp YoY to 26.3%) PAT grew robust 19.3% YoY to INR1.85b (est. 1.6b), 17% higher vs. our estimates.

23.3

23.4

23.7

24.2

24.8

25.3

26.0

27.0

27.0

28.0

28.0

28.0

28.0

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

Value added Hair Oils (%)

53.3

54.8

57.4

58.2

58.4

58.6

58.0

58.0

57.1

57.0

57.0

55.0

55.0

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

Saffola (%)

4 August 2014 5

Marico

Recurr EBITDA margins contracted 30bp YoY


Sharp 640bp gross margin decline due to Copra price inflation


Raw material price Index (April, 2010 as base)


International Business: Sharp 500bp EBITDA margin expansion IBD revenues posted 16% YoY revenue growth, with an underlying constant

currency growth of 9.6%. However key highlight of IBD in 1Q15 was a sharp ~500bp operating margin expansion to 18.2% driven by better scale and cost control.

Bangladesh posted 14% constant currency sales growth on the back of 5% volume growth. The company witnessed market share gains across categories. Management expects revenues for the region to grow at double digits over the next 3-5 years.

Middle East and North Africa (MENA) grew by 18% YoY (constant currency) on the back of strong recovery in the Middle East business.

Vietnam (South East Asia) sales were flat given the reduced consumer confidence due to macro slowdown. The management has guided for subdued performance from this region in the near term.

South Africa grew by 9% (constant currency) despite tough macro conditions. For International division, Marico expects to achieve 15-20% constant currency

organic revenue growth with operating margins in the range of 14-15%, in the medium term.

0

5

10

15

20

40

45

50

55

60

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

Gross margins (%) EBITDA margins (%)

6,72

7

5,97

6

5,41

8

4,71

6

4,14

0

4,09

3

4,14

7

4,62

6

4,49

3

5,29

9

7,39

7

8,50

8.0

1035

7

42.8 44.6 47.852.0

48.951.2 52.0

55.851.4 49.8

48.2 47.745.0

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

Copra Prices (INR) Gross Margin (%)

050

100150200250300350

Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

Copra Calicut Sun flower Oil bonbay Kardi Oil Jalna Rice Bran

4 August 2014 6

Marico

Segmental details Sales FY12 1QFY13 2QFY13 3QFY13 4QFY13 FY13 1QFY14 2QFY14 3QFY14 4QFY14 FY14 1QFY15

Domestic 27,659 9,342 7,927 8,282 6,975 32,526 10,008 8,040 9,020 8,120 35,188 12,800

International 9,355 2,555 2,753 2,610 2,158 10,076 2,948 3,140 2,990 2,600 11,678 3,430

Skin Care 2,783 806 915 785 853 3,360 868 NA NA NA 868 NA

Total 39,797 12,703 11,595 11,678 9,986 45,962 13,824 11,180 12,010 10,720 47,734 16,230

EBIT

Domestic 4,443 1,851 1,248 1,449 1,265 5,812 2,014 1,360 1,600 1,300 6,274 2,320

International 799 171 219 229 34 664 321 450 460 360 1,591 550

Skin Care (291) (73) 57 39 (16) 8 31 NA NA NA 31 NA

Total 4,951 1,949 1,524 1,717 1,282 6,484 2,366 1,810 2,060 1,660 7,896 2,870

EBIT margins

Domestic EBIT margins 16.1% 19.8% 15.7% 17.5% 18.1% 17.9% 20.1% 16.9% 17.7% 16.0% 17.8% 18.1% International EBIT margins

8.5% 6.7% 8.0% 8.8% 1.6% 6.6% 10.9% 14.3% 15.4% 13.8% 13.6% 16.0%

Skin Care -10.4% -9.0% 6.2% 5.0% -1.9% 0.2% 3.5% NA NA NA 3.5% NA

Total 12.4% 15.3% 13.1% 14.7% 12.8% 14.1% 17.1% 16.2% 17.2% 15.5% 16.5%

Capital employed

Domestic 6,087 13,645 13,672 13,458 15,309 15,309 7,549 7,030 6,570 7,440 28,589 7,920

International 5,950 5,818 5,385 5,214 4,853 4,853 5,036 4,680 44,720 4,470 58,906 5,680

Skin Care 1,924 1,743 1,787 1,895 1,416 1,416 1,620 NA NA NA 1,620 NA

Unallocated (2,530) (3,726) (2,828) (1,551) (1,762) (1,762) (532) NA NA NA -532 NA

Total 11,430 17,480 18,016 19,016 19,815 19,815 13,673 11,710 51,290 11,910 88,583 13,600

ROCE

Domestic 73.0% 13.6% 9.1% 10.8% 8.3% 38.0% 26.7% 19.3% 24.4% 17.5% 21.9% 29.3%

International 13.4% 2.9% 4.1% 4.4% 0.7% 13.7% 6.4% 9.6% 1.0% 8.1% 2.7% 9.7%

Skin Care -15.1% -4.2% 3.2% 2.1% -1.1% 0.5% 1.9% NA NA NA 1.9% NA

Total 43.3% 11.1% 8.5% 9.0% 6.5% 32.7% 17.3% 15.5% 4.0% 13.9% 8.9% 21.1%


Conference Call Highlights Some issues with internal and Nielson reported data as far as category growth

rates are concerned. Expect gradual pick-up in growth- likely in 3Q and 4Q. Monitoring the progress

of monsoon. Expect urban consumption to pick up in 2H. As of now Rural has outgrown

Urban for Marico. Medium term strategy: to double turnover in 4 years. Value Added Hair Oils: Growth has been broad-based across brands and not

just driven by Shanti Amla. International margins: Up ~500bp YoY. Will use the margin gains to invest

behind brands and build deeper presence in existing emerging markets. Net contribution margins of Value Added Hair Oils have gone up in the past two-

three years. Price hikes in Bangladesh have been < India. Expect double digit constant

currency value growth in Bangladesh over next three years. Hair Colors: As per management, Livon’s performance so far has been

satisfactory with good performance in some markets but yet to pick up across geographies.

EBITDA margins should compress in next two quarters due to RM inflation. Current quarter margins had benefit of somewhat lower consumption costs.

4 August 2014 7

Marico

Prefer margins to remain in a band {targets absolute EBITDA/ unit) Valuation & view We have revised our estimates upwards by 3-5% to incorporate 1Q15 beat and

marginally lower tax rates vs. earlier assumption (28% vs. 30%). 1Q15 performance demonstrates Marico’s strong pricing power in its core

portfolio with mid single volume growth in Parachute’s rigid portfolio despite aggressive 33% price hikes.

Notwithstanding near term margin challenges due to Copra inflation, we believe Marico is well placed to capitalize on the potential urban recovery post elections. We maintain Buy rating on the stock with a target price of INR300.

Delay in urban consumption pick up is the key risk.

Revise estimates up 3-5% over FY15-17E

Old New Change

FY FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Sales 55,176 64,332 74,079 55,977 65,348 75,450 1.5% 1.6% 1.9% EBITDA 8,390 9,772 11,144 8,501 9,894 11,413 1.3% 1.2% 2.4% PAT 5,398 6,384 7,304 5,674 6,601 7,650 5.1% 3.4% 4.7%


4 August 2014 8

Marico

Story in charts

Volume growth in domestic portfolio


Category leadership (value market shares)


Revenue CAGR of 16.4% over FY14-FY17E


Margin decline owing to RM inflation


22% PAT growth in 1QFY15


Return rations stable


119 10 10 11 9.5

4.3

22

11

16 16

11

6.89.3

16 17 16

24 24 24.8

11

FY08 FY09 FY10 FY11 FY12 FY13 FY14

Parachute Saffola Value added Hair Oil

10.0 20.0 30.0 40.0 50.0 60.0

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

Coconut Oils (%) Saffola (%) Value added Hair Oils (%)

26,6

08

31,2

83

39,6

82

45,8

43

47,6

32

55,9

77

65,3

48

75,4

50

14.113.1

11.913.4

15.6 15.2 15.1 15.1

FY10E FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Revenues (INR m) EBITDA Margins (%)

51.1

46.7 46.7

51.8

49.448.1 48.5 48.7

FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Gross Margin (%)

850

783

881

714

1,25

8

859

1,02

3

720

1,55

3 1,05

9

1,35

4

1,08

0

1,89

7

15.3

9.4

26.7

-0.3

48.0

9.716.1

0.8

23.523.3

32.3

50.0

22.2

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

PAT (INR m) PAT Growth (%)

36.9

25.9 28.0

19.6

26.729.4 27.2 25.8

FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

RoE trend (%)

4 August 2014 9

Marico

Marico: an investment profile Company description Marico (MRCO) has emerged as a dominant player in the hair care and edible oil segments. It has also made inroads to international markets. Its entry into skin care clinics reaffirms the management's focus on wellness. Key investment arguments We are positive on MRCO's long-term growth

strategy, its successful overseas forays and its new product development for the domestic markets.

The company has been able to leverage its existing brands by entering into new categories.

International operations are gaining traction due to acquisition of Fiancee and Hair Code brands in Egypt and entry into South Africa.

Key investment risks Volume growth could decline, with the inflationary

environment pressurizing consumer wallets. Copra price fluctuation poses a risk to profitability

in the core business of pure coconut oil, despite change in the company's pricing policy and its improved pricing power.

Recent developments Kaya has been de-merged from MRCO into a

separate entity - Marico Kaya Enterprises Limited (MAKE), as part of restructuring of the Marico group (effective 1st April 2013).

Price hike of 19% in Parachute portfolio on a weighted average basis (June 2014)

Valuation and view We expect Parachute volumes to recover in FY15.

Price hike in Parachute should drive revenue growth ahead. Management has maintained its guidance of 13-14% for International business v/s 8% recorded in FY13. We maintain a Buy rating on the stock with an unchanged TP of INR300.

Sector view We have a cautious view on the sector, given the

slower income growth in the economy, which might impact volumes as well as profit margins of companies.

Companies with low competitive pressures and broad product portfolios will be able to better withstand any slowdown in a particular segment.

Longer term prospects appear bright, given consumption trend and strengthening rural market.

Comparative valuations Marico GCPL Dabur P/E (x) FY15E 29.2 32.4 31.8 FY16E 25.1 26.4 27.0 P/BV (x) FY15E 7.6 7.2 10.7 FY16E 6.2 6.2 8.9 EV/Sales (x) FY15E 3.0 3.5 4.1 FY16E 2.6 2.9 3.5 EV/EBITDA (x) FY15E 19.8 22.3 24.9

FY16E 17.0 18.6 21.2

EPS: MOSL forecast v/s consensus (INR) MOSL Consensus Variation Forecast Forecast (%)

FY15 8.8 8.6 2.4

FY16 10.3 10.2 1.2

Target price and recommendation Current Target Upside Reco. Price (INR) Price (INR) (%)

257 300 16.7 Buy

Shareholding pattern (%) Jun-14 Mar-14 Jun-13

Promoter 59.7 59.7 59.7

DII 6.2 6.0 5.2

FII 28.1 27.6 28.0

Others 6.0 6.7 7.1

Note: FII Includes depository receipts

Stock performance (1-year)

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Financials and valuations Income statement (INR Million) Y/E Mar 2014 2015E 2016E 2017E Net Sales 47,632 55,977 65,348 75,450 Change (%) 3.9 17.5 16.7 15.5 EBITDA 7,439 8,501 9,894 11,413 EBITDA Margin (%) 15.6 15.2 15.1 15.1 Depreciation 796 826 945 1,138 EBIT 6,643 7,675 8,949 10,275 Interest 365 314 269 217 Other Income 679 823 956 1,089 Extraordinary items 0 0 0 0 PBT 6,957 8,184 9,636 11,147 Tax 1,572 2,291 2,794 3,233 Tax Rate (%) 22.6 28.0 29.0 29.0 Reported PAT 4,853 5,674 6,601 7,650 Adjusted PAT 5,198 5,674 6,601 7,650 Change (%) 34.7 9.1 16.3 15.9 Min. Int. & Assoc. Share -187 -219 -241 -265 Adj Cons PAT 4,666 5,455 6,360 7,386

Balance sheet (INR Million) Y/E Mar 2014 2015E 2016E 2017E Share Capital 644 644 644 644 Reserves 16,103 21,174 26,118 31,809 Net Worth 16,747 21,818 26,762 32,453 Debt 5,426 5,784 6,151 6,535 Deferred Tax -185 -146 -92 -24 Total Capital Employed 21,987 27,456 32,820 38,964 Gross Fixed Assets 9,777 11,077 12,677 14,477 Less: Acc Depreciation -5,723 -6,550 -7,494 -8,632 Net Fixed Assets 4,054 4,528 5,183 5,845 Capital WIP 1,500 1,500 1,500 1,500 Investments 4,846 9,853 13,818 18,149 Current Assets 14,477 16,031 18,813 21,725 Inventory 7,867 9,236 11,109 12,826 Debtors 2,193 2,575 3,137 3,622 Cash & Bank 2,155 1,812 1,997 2,531 Loans & Adv, Others 2,261 2,409 2,570 2,746 Curr Liabs & Provns 8,180 9,651 11,593 13,260 Curr. Liabilities 7,054 8,309 9,010 10,209 Provisions 1,127 1,342 2,584 3,051 Net Current Assets 6,296 6,380 7,219 8,465 Total Assets 21,987 27,456 32,820 38,964

E: MOSL Estimates

Ratios Y/E Mar 2014 2015E 2016E 2017E Basic (INR) EPS 8.1 8.8 10.3 11.9 Cash EPS 8.5 9.8 11.3 13.2 Book Value 26.0 33.9 41.6 50.4 DPS 0.8 0.8 2.2 2.6 Payout (incl. Div. Tax.) 12.1 11.0 9.5 22.4 Valuation(x) P/E 31.8 29.2 25.1 21.6 Cash P/E 30.3 26.3 22.7 19.4 Price / Book Value 9.9 7.6 6.2 5.1 EV/Sales 3.5 3.0 2.6 2.2 EV/EBITDA 22.5 19.8 17.0 14.8 Dividend Yield (%) 0.3 0.3 0.9 1.0 Profitability Ratios (%) RoE 26.7 29.4 27.2 25.8 RoCE 27.9 31.0 29.7 28.6 Turnover Ratios (%) Asset Turnover (x) 2.0 2.3 2.2 2.1 Debtors (No. of Days) 16.8 16.8 17.5 17.5 Inventory (No. of Days) 60.3 60.2 62.1 62.1 Leverage Ratios (%) Net Debt/Equity (x) 0.3 0.3 0.2 0.2

Cash flow statement (INR Million) Y/E Mar 2014 2015E 2016E 2017E OP/(Loss) before Tax 8,236 9,327 10,838 12,550 Depreciation -796 -826 -945 -1,138 Interest 314 509 687 872 Direct Taxes Paid 1,572 2,210 2,698 3,121 (Inc)/Dec in Wkg Cap 681 -428 -654 -712 CF from Op. Activity 10,007 10,792 12,625 14,695 (Inc)/Dec in FA & CWIP 6,033 -1,205 -1,505 -1,705 (Pur)/Sale of Invt -2,930 -5,006 -3,965 -4,332 CF from Inv. Activity 3,102 -6,211 -5,470 -6,036 Inc / (Dec) in Debt -781 358 367 384 Divd Paid (incl Tax) -603 -603 -1,657 -1,958 CF from Fin. Activity -12,219 -4,924 -6,970 -8,125 Inc/(Dec) in Cash 890 -343 185 534 Add: Opening Balance 1,265 2,155 1,812 1,997 Closing Balance 2,155 1,812 1,997 2,531

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N O T E S

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Disclosure of Interest Statement MARICO LTD Analyst ownership of the stock No

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Marico 1QFY15 results ahead of expectations; buy - Motilal Oswal