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REGISTER NOW OR LOGINMarico (NSE:MARICO) is a leading consumer goods company in India. The company deals with a portfolio of beauty and wellness products. It has a presence in 25 countries across emerging markets of Asia and Africa. The popularity of Marico’s products can be gauged from the fact that 1 in every 3 Indians use them. Marico has an extensive distribution network and it reached close to 118 million Indian households and 58,000 Indian villages in the last year. It has eight factories across the country and five international manufacturing facilities. The company manages a brand portfolio of 25 brands across various categories.
Given, its long-standing customer relations, large footprint, extensive R&D and innovative products, Marico is well-placed to cater to changing consumer patterns in a post-COVID world.
Marico Advantages
i) Wide Product offering - Marico has been around since the 1970s and has a wide product portfolio offering of consumer goods in the categories of edible oils (~64% of total product revenues in FY 2020), hair oil (~25%), personal care (~6%), and others (~5% - including health foods, male grooming, and fabric care). The company’s most popular brands in India include Parachute, Parachute Advansed, Saffola, Hair & Care, Nihar, Nihar Naturals, Livon, Set Wet, Mediker and Revive. Parachute, HairCode, Fiancee, Caivil, Hercules, Black Chic, Isoplus, Code 10, Ingwe, X-Men, and Thuan Phat are popular brands in the international markets. Most of its products offering are consumer defensive in nature with about 85% of the portfolio comprising of daily-use items.
ii) Customer-centric approach - With more than four decades of experience under its belt, Marico has developed a strong understanding of consumer needs and behaviors and it has been adapting itself to the rapid changes in consumer behavior. Modern trade and e-commerce sales grew steadily, with contribution rising to 17% and 5% of the Indian business respectively. As such, the company is well-positioned for innovations and business model transformations in a post-COVID world. Marico is also re-aligning its product portfolio to meet rising consumers’ demand for better nutrition, health, hygiene, and immunity. Marico’s Saffola is well placed to ride the wave of health awareness and should benefit as people realize the benefits of cooking at homes in a post-COVID world. The company is also focusing on portfolio diversification with a healthy mix of core portfolio and future growth engines in line with changing consumer trends.
iii) Large Global Footprint - Marico’s Indian business account for nearly 78% of the consolidated revenues. The company operates through a widespread distribution network of around 5.1 million outlets and more than 800 value chain partners in the country. The International business accounts for the balance 22% of the consolidated revenues. Marico has a growing presence in the emerging markets of Asia and Africa where products are localized to fulfill the lifestyle needs of its international consumers. The company also exports to Nepal, Bhutan, and Sri Lanka. Marico commands a 23% share in the international FMCG business. The international business registered a mid-single constant currency growth in the last year. Both its key markets of Bangladesh and Vietnam performed well in the latest quarter. Vietnam was the least affected country and businesses were allowed to run in Bangladesh despite the lockdown.
iv) Good Performance across Financial metrics - Marico has successfully delivered growth across important financial metrics over the years. It continues to gain market share across its core segments such as coconut oil, value-added hair oil, and super-premium refined edible oils. Strict social distancing ruled and travel restrictions acted as tailwinds for neighborhood kirana stores and e-commerce during the pandemic. Marico is targeting a medium-term growth rate of 13%-15% in revenue and 8%-10% in volume in India and double-digit constant currency growth in the International business once things get back to normal.
Challenges
Marico has been facing challenges since the outbreak of the COVID-19 pandemic as its international revenues have been adversely affected. Edible Oils and Foods segments performed well during the year, while personal care categories were muted. Marico is expected to witness a slowdown in male grooming and Premium Personal care due to lower discretionary spending which is expected to continue in FY21 owing to the COVID-19 impact. Weak rural demand is also a challenge for Marico. The company, however, posted healthy earnings growth due to improving profitability in an accommodative input cost environment.
Valuation
Marico has a market capitalization value of Rs. 46,900 crores and its shares are currently trading at ~44 times its earnings. The shares are 11% below their 52-week high price. The company has successfully clocked a healthy shareholder return of 25% CAGR since listing in 1996. It also pays regular dividends and sports a modest dividend yield of 1.9%. Marico’s borrowings have almost remained stable over the last three years. Below is the stock performance in the last one year.
Source: Money Control
Conclusion
Marico deals with products that are relatively recession-proof and have a resilient demand. The company is targeting to develop scale in the businesses in South Asia, Africa, the Middle East, and Myanmar and is focusing on growing its core portfolio, expanding its product portfolio in existing and new categories and markets. The company’s brands continued to gain market share across each of its key franchises. Quality, trusted brands and product innovations are Marico’s strong competitive advantages. Investors can look at buying on dips as e-commerce, accounted for only 3% of overall FMCG sales in India. It is a fast-growing channel and companies like Marico are well poised to capture a large share of the Indian FMCG e-commerce pie.
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