05 may 2020 results review 4qfy20 marico - 4qfy20 - hsie-202005050658052659270.pdfvisual...

05 May 2020 Results Review 4QFY20

Marico

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Saffola saves the day

Marico’s performance in 4QFY20 was broadly in line with our estimates

driven by a surge in Saffola. The rest of the co’s portfolio remained under

pressure and lockdown decelerated PCNO/VAHO by 12/18% respectively. Co

had witnessed marginal recovery in PCNO and VAHO in Jan-Feb, but it was

short lived as it impacted by lockdown. Although supply side issues will be

resolved in the coming months (as of now 70-80% utilisation) but demand

side pressure will impact FY21 (particularly to VAHO/PC). International

business (22% of total) was impacted (5% decline) by restrictions in MENA

and lockdown in Bangladesh. It is expected to remain weak in FY21. Co is

focusing on various cost controls and along with softness in copra in FY21 to

support EBITDA margin. We cut our EPS estimates by 1% for FY20/FY21 (4/6%

cut in our thematic report in April). We value Marico at 30x on Mar-22E EPS,

our TP is at Rs 287. Maintain REDUCE.

Saffola drives revenues: Revenues declined by 7% (+9% in 4QFY19 and -2%

in 3QFY20) vs exp of 6% decline. India volume dipped 3% (+8% in 4QFY19

and -1% in 3QFY20) while the overall volume dipped 4%. PCNO witnessed

a 12/8% val/vol dip while VAHO saw a sharp decline of 18/11% in val/vol.

Saffola sustain surge in demand in Jan-Feb that further supported by pantry

loading in March, val/vol grew by 25/25%.

Margins in-line: GM expanded by 23bps to 49.3% (+239bps in 4QFY19 and

+282bps in 3QFY20) vs. exp of +126bps. Employee/A&P/Other expenses

declined by 8/18/2%. The dip in A&P was driven by a reduction in new

product launches during the quarter and curtailment of A&P in the last

week of March. EBITDA margin was up 58bps to 18.9% (+125bps in 4QFY19

and +170bps in 3QFY20) vs expectation of +59 bps. EBITDA declined by 4%

YoY. EBIT margins for Domestic/International expanded by 141/3bps.

Call & other takeaways: (1) 90-95% of Marico’s portfolio saw market share

gains, (2) Co expects the impact of Covid-19 to be sharper at the bottom of

pyramid in urban markets than in rural (3) International biz is expected to

recover in the near term as key markets for the co, like Bangladesh, are

opening up, (4) Co is working at 70-80% of capacity. However, restocking at

the distributor level has been a challenge, (5) Co believes growth in Saffola

will remain strong due to the increase in home cooking, (6) Co has launched

sanitizer and Veggie clean to boost its hygiene portfolio. Sanitizer has been

launched in Bangladesh and Vietnam as well.

Maintain REDUCE: Marico’s business will be less volatile than some of

its peers. Despite FY21 performance will be muted and we do not see any

re-rating drivers in the near term. We maintain REDUCE rating.

Financial Summary

YE Mar (Rs mn) Q4

FY20

Q4

FY19

YoY

(%)

Q3

FY20

QoQ

(%) FY19 FY20E FY21E FY22E

Net Sales 14,960 16,090 (7.0) 18,240 (18.0) 73,336 73,150 73,579 79,649

EBITDA 2,820 2,940 (4.1) 3,730 (24.4) 12,919 14,690 15,454 16,859

APAT 1,950 2,114 (7.7) 2,720 (28.3) 9,285 10,364 10,886 12,197

Diluted EPS (Rs) 1.51 1.64 (7.7) 2.11 (28.3) 7.19 8.03 8.43 9.45

P/E (x)

39.5 35.4 33.7 30.1

EV / EBITDA (x)

28.3 24.9 23.7 21.8

RoCE (%)

47.5 41.8 43.2 46.5

Source: Company, HSIE Research

REDUCE

CMP (as on 4 May 2020) Rs 284

Target Price Rs 287

NIFTY 9,294

KEY

CHANGES OLD NEW

Rating REDUCE REDUCE

Price Target Rs 287 Rs 287

EPS % FY21E FY22E

-1% -1%

KEY STOCK DATA

Bloomberg code MRCO IN

No. of Shares (mn) 1,291

MCap (Rs bn) / ($ mn) 367/4,855

6m avg traded value (Rs mn) 881

52 Week high / low Rs 404/234

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (7.5) (22.2) (20.1)

Relative (%) 12.7 (1.2) (1.4)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 59.60 59.60

FIs & Local MFs 9.54 10.50

FPIs 23.84 22.70

Public & Others 7.02 7.20

Pledged Shares 0.0 0.0

Source : BSE

Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Aditya Sane

[email protected]

+91-22-6171-7336

Page | 2

Marico: Results Review 4QFY20

Marico Quarterly Commentary Particulars 1QFY20 2QFY20 3QFY20 4QFY20

Industry/ Co

Strategy

- Demand environment

continued to remain

challenging

- Channel liquidity was

constrained, but it is expected

to improve in 2HFY20

- Rural growth was ahead of

urban for the co

- Co is focusing on improving

direct reach and rural

distribution

- Consumption slowed down in

rural and channel liquidity was

constrained in wholesale

- Rural slowdown was most

prominent in the North and

East

- Urban GT systems were under

stress which aggravated the

slowdown

- Over the long term, the co is

worried about the wholesale

channel and has added 1,500+

stockists

- Mgt expects recovery in

demand by 2QFY21

- Demand trend saw no

significant change in 3Q vs 2Q

but the deceleration rate has

come down

- Co witnessed reverse

migration from branded to

loose in rural

- Direct reach for urban and

rural stands at 1mn outlets.

Overall reach is 5mn outlets

- MT & Ecomm contribution to

sales stands at 19-20%

- Demand remained weak pre-

Covid. While, co was on track

for mid single digit growth

- 90-95% of co’s portfolio gained

market share

- Co is currently functioning at

70-80% of capacity. However, it

is struggling to restock in rural

areas and wholesale

- Impact on offtake is expected

to be higher at the bottom of

pyramid among urban markets

than in rural

Revenue

Coconut Oil &

VAHO

- Parachute continued to do

well

- Usually Copra deflation

results in slowdown in volume.

However, smaller players have

limited ability to load channels

due to liquidity constrains right

now. Hence, Marico could

benefit

- Mid to low range VAHO did

well but growth in premium

was slow. However, co guides

for double digit growth in

remainder of FY20

- Aloe continued to do well

with DFO showing positive

traction

- Both cononut oil and VAHO

saw significant slowdown in

growth, primarily driven by

rural

- Focus in Parachute is on

pricing calls and making

conversion packs more attractiv

- Despite the slowdown, Amla,

Aloe Vera and Almond Plus

Walnut oil saw mkt share gains

- Rural slowdown has severely

impacted revenues of PCNO

- Pricing interventions by the co

hit shelves towards in Dec

- Mgt believes that the

degrowth is a oneoff and

decline will reduce over the

next 2-3 quarters

- Co saw Aloe vera and DFO

deliver strong performance

- Marico's is targeting double

digit growth by end of FY21.

Mid-high single digit growth

will be visible from 2QFY21

- Participation in hair fall and

other premium categories will

be ramped up over the next 2-3

quarters

- PCNO saw long low single

digit volume growth while

VAHO was mildly positive in

Jan/Feb

- PCNO gained market share of

>250bps

- Bottom of pyramid products

saw good traction within

VAHO, with Shanti Amla

gaining market share of 90bps.

- Co expects impact of

lockdown to be felt in premium

non sticky oils. However, core

portfolio is not expected to be

impacted.

- Top of pyramid products in

VAHO saw good traction in MT

and Ecomm

Saffola - Despite efforts by the co,

Saffola did well only in MT and

Ecomm. Co continued to

struggle in GT

- Co is now launching

differentiated packs across

channels in order to drive

volumes

- Saffola continued to struggle.

The co is focusing on

reassessing its strategy across

channels

- Plans are being made for a

significant distribution drive in

1-litre packs

- Saffola performed well across

all trade channels

- Co guides for mid-high single

digit growth in near-med term

- Medium term growth is

expected to be around 8-10%

- Mgt does not want to dilute its

competitive position and price

premium to chase volumes

- Ecomm B-B has seen

significant correction in

assortment

- Performance in Jan/Feb was

strong. Co was able to build

inventory in channels prior to

lockdown

- Increase in home cooking will

benefit Saffola

- Saffola was on track for

double digit growth even

without Covid-19 boost.

- Co is focusing its efforts on

Gold & Total due to higher

realisation. It is also focusing on

larger SKUs

- Co expects double digit

growth for Saffola in near term

Page | 3


Particulars 1QFY20 2QFY20 3QFY20 4QFY20

Others - Food and Premium Hair

Nourishment continued to do

well with growth > 20%

- Male grooming struggled due

to Deos, but ex-Deos growth

was in double digits

- Male grooming was impacted,

especially in the LUP packs

- Focus on premiumization

with wax and male serums

should lead it back to growth in

2HFY20

- Foods and Premium Hair

Nourishment performed well

- In Kaya skin care, capabilities

like top end premium skin care

visual merchandising and

beauty adviser/promoter based

selling will be developed over

the next 6 months

- Other products saw 20-25%

growth on value terms

- Co is witnessing traction in

the new foods category with

brands like FITTIFY

- Perfect Nashta was expanded

to NCR and will be launched in

Mumbai in 4Q

- Co expects the foods to cross

Rs 2.5bn in FY21

- Livon is expected to growt in

double digits in FY21

- Kaya youth has started getting

critical mass

- Oats saw value growth of 23%

- Fittify and Coco Soul

performed well in Jan/Feb.

However, Fittify has posted

underwhelming performance in

its first year.

- Premium skin care and male

grooming continued to struggle

- Co launched hand sanitizers

and veggie clean to boost its

hygiene portfolio

International - Bangaldesh and Vietnam

delivered a stable quarter

- Diversification is ongoing in

Bangladesh where co has

launche Male Grooming, Skin

care, baby products and will

continue to expand

- MENA biz saw a decine due

to one time distribution

correction in preparation of

localization of production

- Bangladesh exhibited robust

growth driven by portfolio

diversification while other

geographies were flattish

- MENA and South Africa faced

demand issues

- Internation business saw

healthy operating margins

- Growth in Bangladesh was

broad based. Coconut oil is

being ramped up in that market

- HPC growth in Vietnam was

healthy

- Co remains positive on

Vietnam and Bangladesh due to

encouraging macros

- High single digit-low double

digit CC growth is expected

going forward

- Bangladesh witnessed the

impact of Covid-19 only for the

last 4-5 days. Hence,

performance in the market was

strong. SE Asia also saw low

impact

- MENA and South Africa were

severely impacted

- Marico is 2nd placed FMCG co

in Bangladesh with a growing

non-PCNO portfolio

- Co expects International biz to

recovery in the near term

Margin

Gross Margin - Co continued to enjoy copra

deflation. However, Mgt

expects copra prices to rise

from 3QFY20

- Co guides for gross margin

expansion of ~300bps for FY20

- Copra prices were the lowest

in July which helped expand

gross margins

- However, this accelerated the

downgradation as co did not

take any price correction

- Input cost inflation is expected

to remain tepid throughout the

year

- Mild inflation expected is in

COPRA and inflation in edible

oil could put pressure on GM in

FY21

- Co expects margin in FY20 to

be above 20%

- Benign RM inflation helped co

improve GM

- Co is focusing on providing

consumers value through

Saffola

- Dip in coconut demand will

keep copra prices deflationary

in FY21

EBITDA

Margin

- Co plans to continue investing

aggressively behind innovation

- A&P spend will also be

maintained at a competitive

level

- International margin is

expected to remain around 18-

20% which will boost

EBITDAM for FY20

- The co continued to invest in

A&P, which is expected to

grow, and is on course on the

strategy for the year

- Overall EBITDA performance

was satisfactory and recovery is

expected in 2HFY20 owing to

good monsoon and thrust on

govt spending

- Marico is controlling its

overall ad spend in order to

invest behind growth initiatives

- EBITDA margins could see a

minor reduction in FY21 as a

result of these investments

- A&P decline was led by lower

new product launches in

4QFY20. Co also curtailed A&P

in last week of March.

However, International A&P

did not see any dip.

- A&P is expected to dip by

~100bps in FY21.

Page | 4


Quarterly standalone Financial Snapshot

Particulars (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%)

Net Revenue 14,960 16,090 (7.0) 18,240 (18.0) 73,353 73,336 0.0

Material Expenses 7,590 8,200 (7.4) 9,280 (18.2) 37,450 40,177 (6.8)

Employee Expenses 1,080 1,170 (7.7) 1,160 (6.9) 4,780 4,666 2.4

ASP Expenses 1,260 1,530 (17.6) 1,850 (31.9) 7,270 6,589 10.3

Other Expenses 2,210 2,250 (1.8) 2,220 (0.5) 8,960 8,985 (0.3)

EBITDA 2,820 2,940 (4.1) 3,730 (24.4) 14,690 12,919 13.7

EBITDA (IND-AS 116) 2,700 2,940 (8.2) 3,730 (27.6) 14,210 12,919 10.0

Depreciation 380 390 (2.6) 320 18.8 1,400 1,064 31.6

EBIT 2,440 2,550 (4.3) 3,410 (28.4) 13,290 11,855 12.1

Other Income 320 280 14.3 290 10.3 1,259 1,028 22.5

Interest Cost 130 120 8.3 120 8.3 500 278 80.2

PBT 2,530 2,710 (6.6) 3,580 (29.3) 13,740 12,605 9.0

Tax 530 (1,330) (139.8) 820 (35.4) 3,435 1,274 169.7

PAT 1,950 3,990 (51.1) 2,720 (28.3) 10,220 11,162 (8.4)

Exceptional Items - (1,876) na - na 144 (1,876) na

APAT 1,950 2,114 (7.7) 2,720 (28.3) 10,364 9,285 11.6

EPS 1.5 1.6 (7.7) 2.1 (28.3) 8.0 7.2 11.6


Quarterly Performance Analysis

As a % of net sales Q4FY20 Q4FY19 YoY(bps) Q3FY20 QoQ(bps) FY20 FY19 YoY(bps)

Material Expenses 50.7 51.0 (23) 50.9 (14) 51.1 54.8 (373)

Employee Expenses 7.2 7.3 (5) 6.4 86 6.5 6.4 15

A&P Expenses 8.4 9.5 (109) 10.1 (172) 9.9 9.0 93

Other Expenses 14.8 14.0 79 12.2 260 12.2 12.3 (4)

EBITDA Margin (%) 18.9 18.3 58 20.4 (160) 20.0 17.6 241

Adj EBITDA Margin (%) 18.0 18.3 (22) 20.4 (240) 37.9 32.2 579

Tax Rate (%) 20.9 (49.1) 7,003 22.9 (196) 25.0 10.1 1,490

APAT Margin (%) 13.0 13.1 (10) 14.9 (188) 14.1 12.7 147


Domestic revenue declined

7% with overall volume

decline of 4%

Employee/A&P/Other

expenses decreased by

8/18/2%

GM was up 23bps to 49.3%

(+239bps in 4QFY19 and

+282bps in 3QFY20) vs

expectation of +126bps

EBITDA margin expanded

58bps, in-line with

expectations

Page | 5


Segmental Performance

(Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%)

Segmental Revenues

Domestic 11,460 12,400 (7.6) 13,800 (17.0) 56,550 57,559 (1.8)

International 3,500 3,690 (5.1) 4,440 (21.2) 16,600 15,780 5.2

Total 14,960 16,090 (7.0) 18,240 (18.0) 73,150 73,338 (0.3)

Segmental EBIT

Domestic 2,380 2,400 (0.8) 2,980 (20.1) 11,700 10,687 9.5

International 570 600 (5.0) 850 (32.9) 3,360 2,885 16.5

Total 2,950 3,000 (1.7) 3,830 (23.0) 15,060 13,572 11.0

Capital Employed

Domestic 14,320 13,920 2.9 12,380 15.7 14,320 13,920 2.9

International 7,330 6,930 5.8 7,530 (2.7) 7,330 6,930 5.8

Total 21,650 20,850 3.8 19,910 8.7 21,650 20,850 3.8


EBIT Margin

EBIT Margin Q4FY20 Q4FY19 YoY(bps) Q3FY20 QoQ(bps) FY20 FY19 YoY(bps)

Domestic 20.8 19.4 141 21.6 (83) 20.7 18.6 212

International 16.3 16.3 3 19.1 (286) 20.2 18.3 196

Total 19.7 18.6 107 21.0 (128) 20.6 18.5 208


Business Performance

Value Growth (%) Q1

FY18

Q2

FY18

Q3

FY18

Q4

FY18

Q1

FY19

Q2

FY19

Q3

FY19

Q4

FY19

Q1

FY20

Q2

FY20

Q3

FY20

Q4

FY20

Total (4) 6 15 12 20 20 15 9 7 (0) (2) (7)

India (4) 12 19 12 23 20 13 7 6 (3) (4) (4)

International (1) (8) 1 13 9 18 21 14 9 8 8 (5)


Segment Performance

Particulars (%) Q1

FY18

Q2

FY18

Q3

FY18

Q4

FY18

Q1

FY19

Q2

FY19

Q3

FY19

Q4

FY19

Q1

FY20

Q2

FY20

Q3

FY20

Q4

FY20

FMCG Business

(India)

Value Growth (4) 12 19 12 23 20 13 7 6 (3) (5) (8)

Volume Growth (9) 8 9 1 12 6 5 8 6 1 (1) (3)

Parachute Coconut

Oil

Value Growth 3 26 41 24 38 32 19 4 8 (4) (5) (12)

Volume Growth (9) 12 15 (5) 9 8 9 6 9 (1) (2) (8)

VAHO

Value Growth (7) 12 7 9 12 12 19 7 11 (6) (17) (18)

Volume Growth (8) 12 8 11 15 5 7 1 7 - (7) (11)

Saffola (Refined

Edible Oil)

Value Growth (8) 1 (4) (3) 9 9 8 15 6 5 13 25

Volume Growth (9) 3 - (1) 10 5 2 18 3 1 11 25


Page | 6


Market Share Trend Particulars (%) Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

India

Coconut Oils 58 59 59 59 59 59 59 59 60 60 61 62

Saffola 66 67 68 69 70 71 72 73 73 75 76 76

Value added Hair Oils 33 34 34 34 34 34 34 34 34 35 35 35

Livon and Silk & Shine 83 83 83 82 81 78 76 75 63 64 65 65

Hair Creams/Gels 62 62 63 63 63 62 61 60 na na na na

Saffola Oats 27 27 28 28 29 29 29 29 30 31 32 33

Overseas

VAHO (Bangladesh) 18 20 21 21 21 22 23 23 22 22 22 23

PCNO (Bangladesh) 86 87 87 87 87 87 87 86 84 84 82 82

X-Men Men’s Shampoo (Vietnam) 38 39 40 39 39 39 40 39 38 37 37 37

Hair Code & Fiancée (Egypt) 54 54 53 na na na na na na na na na


Geographical Performance (constant currency) Geography Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Bangladesh 12 11 12 17 9 10 16 12 11 15 15 6

MENA (14) - 15 61 17 19 8 5 ~ -10 (3) (4) (50)

South Africa 5 1 32 32 7 18 - 3 6 (2) 3 (26)

South East Asia 7 (8) (4) (3) - 14 13 4 8 1 3 5


Consolidated Revenue Breakup (FY20) International Revenue Breakup (F20)



Parachute (Rigid pack)

29

VAHO18Saffola

15

Intl.23

Others14

(%)

Bangladesh49

MENA12

South Africa

7

South East

Asia

26

Others

6(%)

Page | 7


Long term performance trends

Urban GT Growth (YoY) Rural Growth (YoY)

Source: Company, HSIE Research Source: Company, HSIE Research

Modern Trade Growth (YoY) CSD Growth (YoY)


Copra Inflation Gross Margin Change


9

0

10

15

5

16

11

2

(2)

(5)

(11)

(7)

(12)(14)

(10)

(6)

(2)

2

6

10

14

18

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

Q2F

Y20

Q3F

Y20

Q4F

Y20

(%)

4

(11)

14

26

12

28 24

12

4 6

(3) (2)

(15)(24)

(13)

(2)

9

20

31

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

Q2F

Y20

Q3F

Y20

Q4F

Y20

(%)

17

11

27 27 23

39 39

46

28 30 29

12

44

-

6

11

17

22

28

33

39

44

50

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

Q2F

Y20

Q3F

Y20

Q4F

Y20

(%)

(13) (15)

(1) (1)

32

15

(3)

12 12

na 5 5

(18)

(30)

(20)

(10)

-

10

20

30

40

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

Q2F

Y20

Q3F

Y20

Q4F

Y20

(%)

-50%

0%

50%

100%

150%

Q4

FY1

1

Q3

FY1

2

Q2

FY1

3

Q1

FY1

4

Q4

FY1

4

Q3

FY1

5

Q2

FY1

6

Q1

FY1

7

Q4

FY1

7

Q3

FY1

8

Q2

FY1

9

Q1

FY2

0

Q4

FY2

0

(800)

(400)

-

400

800

Q4

FY1

1

Q2

FY1

2

Q4

FY1

2

Q2

FY1

3

Q4

FY1

3

Q2

FY1

4

Q4

FY1

4

Q2

FY1

5

Q4

FY1

5

Q2

FY1

6

Q4

FY1

6

Q2

FY1

7

Q4

FY1

7

Q2

FY1

8

Q4

FY1

8

Q2

FY1

9

Q4

FY1

9

Q2

FY2

0

Q4

FY2

0

(bps)

Page | 8


Change in Raw Material Prices (Index) Change in Product MRP (Index)


Assumptions

Particulars FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Revenue Growth (%)

Domestic Business 22.9 7.9 (2.1) 8.6 15.9 (1.7) 0.5 8.6

Parachute Coconut 29.3 7.7 (11.6) 10.0 23.0 (2.4) (0.3) 9.1

VAHO 25.6 11.3 6.8 10.6 12.2 (6.4) (6.0) 9.4

Saffola Oil 10.7 10.1 6.1 (3.9) 10.0 11.7 8.5 8.0

IBD 9.9 5.6 2.0 2.0 10.0 (2.0) (5.0) 10.0

Gross Margin (%) 45.6 49.0 52.2 47.0 45.2 48.8 49.0 49.3

ASP (% of sales) 11.3 11.5 11.0 9.3 9.0 9.9 8.7 8.8

Distribution (% of sales) 3.8 4.2 4.0 3.8 3.9 4.0 4.0 4.0

EBITDA Margin (%) 15.2 17.5 19.6 18.0 17.6 20.1 21.0 21.2

Tax Rate (%) 28.8 29.7 29.4 25.9 10.1 24.9 25.1 25.1


10

0

10

0

10

0

10

0

10

0

10

0

97

10

0

127

10

7

96

85

65

80

95

110

125

140

Cochin

Coconut

OIL

Copra

Calicut

Kardi Oil

Jalna

Rice Bran Liquid

Paraffin

HDPE

Mar-19 Mar-20

100

100

100

100

100

100

100

100

100

100

100

100

100

93

80

90

100

110

PCNO -

50 ml

PCNO -

100 ml

PCNO -

250 ml

Saffola

Total

Saffola

Tasty

Blend -1ltr

Saffola

Gold -

1ltr

Saffola

Active -

1ltr

Mar-19 Mar-20

Page | 9


Change in Estimates

FY20 FY21E FY22E

OLD NEW Chg (%) OLD NEW Chg (%) OLD NEW Chg (%)

Net Sales 73,150 73,376 (0.3) 73,579 75,265 (2.2) 79,649 82,241 (3.2)

EBITDA 14,690 14,630 0.4 15,454 15,381 0.5 16,859 16,972 (0.7)

APAT 10,364 10,392 (0.3) 10,886 11,012 (1.1) 12,197 12,345 (1.2)

EPS 8.0 8.1 (0.3) 8.4 8.5 (1.1) 9.4 9.6 (1.2)

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

HUL 4,517 2,087 REDUCE 1,969 31.7 37.1 41.9 69.3 59.2 52.4 47.5 40.8 36.3 230.7 46.5 28.8

ITC 2,127 174 BUY 221 12.5 11.9 13.0 13.8 14.6 13.3 9.3 10.1 9.0 44.5 43.4 48.0

Nestle 1,683 17,457 REDUCE 14,042 206.2 237.7 279.0 84.7 73.4 62.6 56.5 50.6 44.2 74.9 70.3 68.7

Dabur 822 467 REDUCE 447 9.0 10.0 11.2 51.8 46.6 41.7 41.6 38.5 34.2 51.4 52.7 55.9

Britannia 744 3,096 REDUCE 2,711 56.4 61.9 71.4 54.9 50.0 43.4 40.0 36.0 31.6 41.1 43.4 47.2

GCPL 537 526 REDUCE 529 14.5 15.9 17.6 36.3 33.1 29.9 25.9 24.9 23.0 18.5 20.0 22.1

Marico 367 284 REDUCE 283 8.0 8.4 9.4 35.4 33.7 30.1 24.9 23.7 21.8 41.8 43.2 46.5

United Spirits 394 543 ADD 586 11.9 13.7 16.1 47.4 39.7 33.7 27.1 24.7 21.5 17.9 19.1 20.8

Colgate 374 1,375 ADD 1,372 29.8 32.0 36.1 46.1 43.0 38.1 29.2 27.3 24.4 69.6 72.7 80.5

Jubilant 204 1,550 ADD 1,502 30.1 21.9 37.5 51.5 70.9 41.3 31.2 39.0 24.4 31.4 12.0 22.6

Emami 86 189 REDUCE 221 11.7 11.6 13.0 16.2 16.3 14.5 11.5 11.5 10.3 23.2 24.1 29.9

Radico

Khaitan 42 316 BUY 371 16.1 19.6 23.2 19.6 16.2 13.6 11.9 10.1 8.5 14.9 14.3 15.8


Page | 10


Financials Consolidated Income Statement

(Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Net Revenues 57,330 60,173 59,178 63,222 73,336 73,150 73,579 79,649

Growth (%) 22.3 7.0 (1.7) 6.8 16.0 (0.3) 0.6 8.2

Material Expenses 31,190 30,706 28,259 33,482 40,177 37,450 37,553 40,417

Employee Expense 3,251 3,734 4,042 4,222 4,666 4,780 4,948 5,391

ASP Expense 6,498 6,927 6,510 5,856 6,589 7,270 6,372 6,989

Distribution Expense 2,193 2,541 2,386 2,408 2,870 2,926 2,943 3,186

Other Expenses 5,497 5,752 6,389 5,877 6,115 6,034 6,309 6,807

EBITDA 8,700 10,514 11,593 11,378 12,919 14,690 15,454 16,859

EBITDA Growth (%) 16.4 20.8 10.3 (1.9) 13.5 13.7 5.2 9.1

EBITDA Margin (%) 15.2 17.5 19.6 18.0 17.6 20.1 21.0 21.2

Depreciation 843 949 903 891 1,064 1,400 1,507 1,613

EBIT 7,857 9,565 10,690 10,487 11,855 13,290 13,947 15,245

Other Income (Including EO Items) 589 932 973 846 1,028 1,012 1,158 1,487

Interest 230 206 166 162 278 500 398 293

PBT 8,216 10,292 11,497 11,171 12,605 13,802 14,707 16,440

Total Tax 2,368 3,053 3,377 2,896 1,274 3,435 3,692 4,126

Minority Interest & Share of JVs 114 124 134 131 170 152 130 117

RPAT 5,735 7,114 7,986 8,145 11,162 10,214 10,886 12,197

Adjusted PAT 5,735 7,197 8,026 8,142 9,285 10,364 10,886 12,197

APAT Growth (%) 18.1 25.5 11.5 1.4 14.0 11.6 5.0 12.0

Adjusted EPS (Rs) 4.45 5.58 6.22 6.31 7.19 8.03 8.43 9.45

EPS Growth (%) 18.1 25.5 11.5 1.4 14.0 11.6 5.0 12.0


Consolidated Balance Sheet (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

SOURCES OF FUNDS

Share Capital - Equity 645 1,290 1,291 1,291 1,291 1,291 1,291 1,291

Reserves 17,603 18,884 21,966 24,138 27,065 29,947 30,734 33,895

Total Shareholders Funds 18,248 20,174 23,257 25,429 28,356 31,238 32,025 35,185

Minority Interest 137 143 133 125 295 447 577 694

Long Term Debt 1,687 - 1,225 1,224 1,721 1,621 1,421 1,221

Short Term Debt 1,654 1,528 1,163 1,869 1,769 1,619 1,419 1,219

Total Debt 3,342 1,528 2,388 3,093 3,490 3,240 2,840 2,440

Net Deferred Taxes 79 (421) 125 202 (1,760) (1,760) (1,760) (1,760)

Non Current Liabilities 87 128 225 192 221 254 292 336

TOTAL SOURCES OF FUNDS 21,891 21,552 26,128 29,041 30,602 33,420 33,974 36,895

APPLICATION OF FUNDS

Net Block 10,759 10,811 10,847 11,103 13,000 13,960 13,803 13,540

CWIP 30 367 112 268 450 580 580 580

LT Loans & Advances 506 175 194 190 221 220 221 240

Other Non Current Assets 1,198 426 437 656 656 656 656 656

Total Non-current Assets 12,494 11,779 11,590 12,218 14,327 15,416 15,261 15,016

Inventories 9,947 9,256 12,534 15,109 14,110 13,800 14,049 15,254

Debtors 1,768 2,524 2,470 3,406 5,170 5,390 5,298 5,735

Other Current Assets 2,147 1,299 1,196 2,561 3,150 3,142 3,161 3,421

Cash & Equivalents 4,897 8,303 8,442 7,429 8,041 10,548 10,438 12,992

Total Current Assets 18,759 21,382 24,642 28,505 30,471 32,880 32,945 37,402

Creditors 5,643 6,690 6,966 8,217 9,440 9,780 8,543 9,166

Current Liabilities 3,718 4,920 3,138 3,465 4,756 5,097 5,689 6,357

Total Current Liabilities 9,362 11,610 10,104 11,682 14,196 14,877 14,232 15,522

Net Current Assets 9,398 9,772 14,538 16,823 16,275 18,003 18,713 21,879

TOTAL APPLICATION OF FUNDS 21,891 21,552 26,128 29,041 30,602 33,420 33,974 36,895


Page | 11


Consolidated Cash Flow (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Reported PBT 8,217 10,338 11,487 11,170 12,605 13,802 14,707 16,440

Non-operating & EO Items (185) (433) (53) (329) (1,876) 149 - -

Interest Expenses 39 (135) (197) (174) 278 500 398 293

Depreciation 843 1,018 903 891 1,064 1,400 1,507 1,613

Working Capital Change (169) (1) (2,698) (3,065) 2,107 (1,591) (2,320) (2,112)

Tax Paid (2,097) (2,462) (2,964) (2,949) (1,274) (3,435) (3,692) (4,126)

OPERATING CASH FLOW ( a ) 6,648 8,326 6,477 5,544 12,904 10,825 10,600 12,107

Capex (579) (856) (815) (1,231) (3,143) (2,490) (1,350) (1,350)

Free Cash Flow (FCF) 6,070 7,469 5,663 4,313 9,762 8,335 9,250 10,757

Investments & Acquisition 410 (1,179) (441) 1,047 230 (420) - -

Non-operating Income (1,623) (321) 340 353 (1,992) 1 (1) (18)

INVESTING CASH FLOW ( b ) (1,792) (2,357) (915) 169 (4,905) (2,909) (1,351) (1,368)

Debt Issuance/(Repaid) (437) - (670) 692 397 (250) (400) (400)

Interest Expenses (233) (204) (172) (162) (278) (500) (398) (293)

FCFE 4,187 5,765 4,720 6,243 8,119 7,165 8,451 10,046

Share Capital Issuance 6 5 0 0 0 - - 0

Dividend (3,001) (5,025) (5,088) (6,357) (6,358) (7,481) (10,099) (9,036)

Others (2,660) (589) 190 152 29 33 38 44

FINANCING CASH FLOW ( c ) (6,324) (5,813) (5,740) (5,675) (6,210) (8,198) (10,859) (9,685)

NET CASH FLOW (a+b+c) (1,468) 156 (177) 38 1,790 (283) (1,610) 1,054

EO Items, Others 547 (966) 634 397 (0) - - (0)

Closing Cash & Equivalents 2,049 3,171 2,360 2,001 3,791 3,508 1,898 2,952

Key Ratios

FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

PROFITABILITY (%)

GPM 45.6 49.0 52.2 47.0 45.2 48.8 49.0 49.3

EBITDA Margin 15.2 17.5 19.6 18.0 17.6 20.1 21.0 21.2

EBIT Margin 13.7 15.9 18.1 16.6 16.2 18.2 19.0 19.1

APAT Margin 10.0 12.0 13.6 12.9 12.7 14.2 14.8 15.3

RoE 36.0 37.5 37.0 33.4 34.5 34.8 34.4 36.3

RoIC (or Core RoCE) 38.7 44.7 49.3 40.6 47.5 41.8 43.2 46.5

RoCE 29.2 33.9 34.4 30.5 31.6 32.4 32.3 34.3

EFFICIENCY

Tax Rate (%) 28.8 29.7 29.4 25.9 10.1 24.9 25.1 25.1

Fixed Asset Turnover (x) 5.8 5.6 5.0 4.9 4.7 4.1 3.9 3.9

Inventory (days) 63.3 56.1 77.3 87.2 70.2 68.9 69.7 69.9

Debtors (days) 11.3 15.3 15.2 19.7 25.7 26.9 26.3 26.3

Other Current Assets (days) 13.7 7.9 7.4 14.8 15.7 15.7 15.7 15.7

Payables (days) 35.9 40.6 43.0 47.4 47.0 48.8 42.4 42.0

Other Current Liab & Provns (days) 23.7 29.8 19.4 20.0 23.7 25.4 28.2 29.1

Cash Conversion Cycle (days) 28.7 8.9 37.6 54.2 41.0 37.2 41.1 40.7

Net D/E (x) (0.1) (0.3) (0.3) (0.2) (0.2) (0.2) (0.2) (0.3)

PER SHARE DATA (Rs)

EPS 4.4 5.6 6.2 6.3 7.2 8.0 8.4 9.4

CEPS 10.2 6.3 6.9 7.0 8.0 9.1 9.6 10.7

Dividend 1.2 3.4 3.5 4.2 5.0 6.8 7.0 8.0

Book Value 14.1 15.6 18.0 19.7 22.0 24.2 24.8 27.3

VALUATION

P/E (x) 63.9 50.9 45.7 45.0 39.5 35.4 33.7 30.1

P/BV (x) 20.1 18.2 15.8 14.4 12.9 11.7 11.4 10.4

EV/EBITDA (x) 42.2 34.7 31.6 32.3 28.3 24.9 23.7 21.8

EV/Revenues (x) 6.4 6.1 6.2 5.8 5.0 5.0 5.0 4.6

OCF/EV (%) 1.8 2.3 1.8 1.5 3.5 3.0 2.9 3.3

FCF/EV (%) 1.3 1.6 1.5 1.6 2.2 2.2 2.5 2.9

FCFE/Mkt Cap (%) 1.1 1.6 1.3 1.7 2.2 2.0 2.3 2.7

Dividend Yield (%) 0.4 1.2 1.2 1.5 1.8 2.4 2.5 2.8


Page | 12


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: >10% Downside return potential

Date CMP Reco Target

7-May-19 340 BUY 386

9-Jul-19 370 BUY 384

2-Aug-19 363 BUY 395

22-Sep-19 379 NEU 395

11-Oct-19 385 NEU 400

27-Oct-19 393 NEU 391

9-Jan-20 333 NEU 370

31-Jan-20 315 NEU 350

2-Mar-20 299 REDUCE 304

13-Apr-20 295 REDUCE 287

14-Apr-20 291 REDUCE 287

5-May-20 284 REDUCE 287

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

200

250

300

350

400

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-20

May

-20

Marico TP

Page | 13


HDFC securities

Institutional Equities

Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,

Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Board: +91-22-6171-7330 www.hdfcsec.com

Disclosure:

We, Varun Lohchab, PGDM, Naveen Trivedi, MBA & Aditya Sane, CA, authors and the names subscribed to this report, hereby certify that all of the views

expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the

date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific

recommendation(s) or view(s) in this report.

Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative

or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding

the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material

conflict of interest.

Any holding in stock –NO

HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

Disclaimer:

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