Marico ADD ICICI Securities Limited Maintained Is the Author and Distributor of This Report Silver Linings Rs284

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May 5, 2020 INDIA BSE Sensex: 31715 Marico ADD ICICI Securities Limited Maintained is the author and distributor of this report Silver linings Rs284

Saugata's (MD & CEO) opening remarks in the investor conference call laid out all Q4FY20 result review the positives Marico has, in line with our thesis (see our sector report here), (1) and earnings revision benefits of health positioning for Saffola edible oil (and likely higher consumption Consumer Staples & due to more 'cooking at home' occasions), (2) likely benefits from copra price Discretionary correction (our view) for Parachute brand (to be likely utilised for market share gains), (3) potential struggles in wholesale channel benefiting companies (like Target price Rs320 Marico) with higher urban revenue salience and better rural distribution reach, (4) ability (and willingness) to reimagine path to purchase and (5) resilient Earnings revision international exposure (versus Godrej & Dabur) as it has higher exposure to (%) FY21E FY22E Bangladesh, a better performing economy versus Africa and / or Middle East. Sales ↓ 3.1 ↓ 3.1 EBITDA ↓ 3.2 ↓ 2.3 Marico remains an outperformer, in our view, within consumer staples alongside PAT ↓ 5.1 ↓ 3.3 HUL, Dabur, and Nestle. Retain ADD.

 4QFY20 volume decline of 3% was inline: Consolidated revenue / EBITDA / PAT Shareholding pattern declined 7% / 4% / 4%. Domestic volume declined 3% - management estimates that Sep Dec Mar ‘19 ‘19 ‘20 volume would have grown ~4% had it not been for the lockdown. FY2020 Promoters 59.6 59.6 59.6 consolidated revenue / EBITDA / PAT grew 0% / 15% / 13% with 1% volume growth. Institutional investors 33.5 33.3 33.2 Given the current scenario, management highlighted the way forward in the near- MFs and others 4.2 5.1 3.9 term through: (1) improving direct distribution in rural, (2) building new distribution Banks, FI’s 4.4 4.3 6.6 FIIs 24.9 23.9 22.7 models in urban, (3) improving value to consumer (through price-offs, promotions, Others 6.9 7.1 7.2

Source: BSE LUPs) and (4) dialling-up innovation in essential categories (health and hygiene).  Balance sheet: Cash generation remained strong aided by favourable working Price chart capital movement (down to 38 days versus 49 as of Mar’19) – OCF/ FCF grew 20% / 450 18% to Rs 12 bn / Rs 10 bn. Inventory at 69 days is the lowest in past four years – 400 company likely preparing for copra deflation, in our opinion. 350  Segment performance: Parachute revenue declined 12% due to 8% volume

(Rs) 300 decline, impacted by lockdown-led disruptions in March. The brand had reported 250 low-single-digit volume growth in Jan-Feb’20 helped by price corrections taken in the 200 beginning of the quarter. Value added hair oils (VAHO) revenue declined 18% (-11%

volume) as the mid and premium segments continued to underperform even pre-

Nov-17 Nov-18 Nov-19

May-18 May-19 May-20 May-17 COVID. Saffola edible oils grew 25% (similar volume growth) benefitting from

significant pantry stocking in March. However, the brand was also growing in double- digits in Jan-Feb’20. Saffola foods grew 22%. Other categories, mostly discretionary, reported weak volumes – Premium hair nourishment (-19%), Male grooming (-9%).

Market Cap Rs367bn/US$4.8bn Year to March FY19 FY20 FY21E FY22E

Reuters/Bloomberg MRCO.BO/MRCO IN Revenue (Rs mn) 73,340 73,150 72,578 78,996 Shares Outstanding (mn) 1,291.0 Adj. Net Profit (Rs mn) 9,300 10,500 10,508 11,791 Research Analysts: 52 -week Range (Rs) 396/240 Dil. Rec. EPS (Rs) 7.2 8.1 8.1 9.1 Manoj Menon Free Float (%) 40.4 % Chg YoY 14.3 12.9 0.1 12.2 [email protected] FII (%) 22.7 P/E (x) 39.4 34.9 34.9 31.1 +91 22 6637 7209 Daily Volume (US$'000) 11,629 CEPS (Rs) 9.4 9.0 9.3 10.4 Vismaya Agarwal, CFA [email protected] Absolute Return 3m (%) (6.2) EV/EBITDA (x) 28.3 24.7 24.3 21.6 +91 22 2277 7632 Absolute Return 12m (%) (18.4) Dividend Yield (%) 1.7 2.4 2.3 2.5 Karan Bhuwania Sensex Return 3m (%) (22.0) RoCE (%) 30.4 30.6 29.2 32.1 [email protected] +91 22 6637 7351 Sensex Return 12m (%) (17.6) RoE (%) 33.6 34.9 33.6 35.1

Please refer to important disclosures at the end of this report

Marico, May 5, 2020 ICICI Securities

 International business: Revenue declined 6% in constant currency terms (-5% reported) with Bangladesh and Vietnam still performing relatively better versus MENA and South Africa.

 Margin expanded from rationalisation in A&P spends, cost controls: Consolidated EBITDA margin expanded 50bps to 18.9% despite an adverse product mix (Saffola edible oils has the lowest margin among the core segments). This was primarily driven by rationalisation in A&P spends (down 110bps YoY, -18% on an absolute basis) and cost controls. Significant impact on demand of copra means that the raw material is likely to be slightly deflationary in FY21 (management expectations). We model a 40bps expansion in EBITDA margin with 100bps improvement in gross margin (RM-led) and lower A&P spend (-80bps) to be partially offset by negative operating leverage. Company expects "at least" a 100bps savings to flow through from lower ad-spends (without compromising on effectiveness as its likely to be a (media) buyer's market).

 Valuation and risks: We cut our earnings estimates by 3-5%; modelling revenue / EBITDA / PAT CAGR of 4 / 7 / 6 (%) over FY20-22E. Maintain ADD with DCF-based target price unchanged at Rs320. At our target price, the stock will trade at 35x P/E multiple Mar-22E. Key downside risk is higher-than- expected inflation in copra prices.

Table 1: Management guidance over medium term Business Guidance India EBIDTA Margin 20% + Parachute 5-7% CAGR Volume growth Saffola Edible Oils High-single digit volume growth Foods Maintaining 20% plus CAGR Premium Hair Nourishment, Male Value growth of 20% plus CAGR Grooming and Skin Care International Double digit cc growth, EBIDTA Margin 20% + Source: Company data, I-Sec research

Marico, May 5, 2020 ICICI Securities

Table 2: Q4FY20 results review (consolidated) (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%) FY20 FY19 YoY (%) Net operating income 14,960 16,090 (7) 18,240 (18) 73,150 73,340 (0) Material cost (7,590) (8,200) (7) (9,280) (18) (37,450) (40,170) (7) Gross profit 7,370 7,890 (7) 8,960 (18) 35,700 33,170 8 Employee cost (1,080) (1,170) (8) (1,160) (7) (4,780) (4,660) 3 A&SP (1,260) (1,530) (18) (1,850) (32) (7,270) (6,590) 10 Other expense (2,210) (2,240) (1) (2,220) (0) (8,960) (9,110) (2) Total opex (4,550) (4,940) (8) (5,230) (13) (21,010) (20,360) 3 EBITDA 2,820 2,950 (4) 3,730 (24) 14,690 12,810 15 Other income 320 280 14 290 10 1,240 1,030 20 Interest (130) (120) 8 (120) 8 (500) (240) 108 Depreciation (380) (380) - (320) 19 (1,400) (960) 46 Pretax profits 2,630 2,730 (4) 3,580 (27) 14,030 12,640 11 Tax (530) (550) (4) (820) (35) (3,310) (3,160) 5 PAT 2,100 2,180 (4) 2,760 (24) 10,720 9,480 13 Minority Interest (60) (50) (40) (220) (180)

PAT after MI 2,040 2,130 (4) 2,720 (25) 10,500 9,300 13 Extraordinary items (100) 1,880 - (290) 1,880

Net profit (reported) 1,940 4,010 (52) 2,720 (29) 10,210 11,180 (9) EPS 1.6 1.7 (4) 2.1 (25) 8.1 7.2 13 Costs as a % of sales

Gross margin (%) 49.3 49.0 22 bps 49.1 14 bps 48.8 45.2 357 bps EBITDA margin (%) 18.9 18.3 51 bps 20.4 -160 bps 20.1 17.5 261 bps Material cost 50.7 51.0 -23 bps 50.9 -15 bps 51.2 54.8 -358 bps Employee cost 7.2 7.3 -6 bps 6.4 85 bps 6.5 6.4 18 bps A&SP 8.4 9.5 -109 bps 10.1 -173 bps 9.9 9.0 95 bps Other expenditure 14.8 13.9 85 bps 12.2 260 bps 12.2 12.4 -18 bps Income tax rate (%) 20.2 20.1 0 bps 22.9 -276 bps 23.6 25.0 -141 bps Source: Company data, I-Sec research

Table 3: Q4FY20 results review (standalone) (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%) FY20 FY19 YoY (%) Net operating income 11,880 12,900 (8) 14,340 (17) 58,530 59,710 (2) Material cost (6,430) (7,040) (9) (7,790) (17) (32,060) (34,710) (8) Gross profit 5,450 5,860 (7) 6,550 (17) 26,470 25,000 6 Employee cost (680) (750) (9) (730) (7) (3,080) (3,070) 0 A&SP (800) (1,050) (24) (1,200) (33) (5,020) (4,820) 4 Other expense (1,790) (1,790) - (1,760) 2 (7,220) (7,320) (1) Total opex (3,270) (3,590) (9) (3,690) (11) (15,320) (15,210) 1 EBITDA 2,180 2,270 (4) 2,860 (24) 11,150 9,790 14 Other income 1,050 970 8 760 38 3,080 3,010 2 Interest (90) (80) 13 (70) 29 (330) (120) 175 Depreciation (300) (310) (3) (270) 11 (1,130) (810) 40 Pretax profits 2,840 2,850 (0) 3,280 (13) 12,770 11,870 8 Tax (570) (440) 30 (590) (3) (2,520) (2,430) 4 Recurring PAT 2,270 2,410 (6) 2,690 (16) 10,250 9,440 9 Extraordinary items - 1,880 - (190) -

Net profit (reported) 2,270 4,290 (47) 2,690 (16) 10,060 9,440 7 EPS 1.8 1.9 (6) 2.1 (16) 7.9 7.3 9

Costs as a % of sales

Gross margin (%) 45.9 45.4 44 bps 45.7 19 bps 45.2 41.9 335 bps EBITDA margin (%) 18.4 17.6 75 bps 19.9 -160 bps 19.1 16.4 265 bps Material cost 54.1 54.6 -45 bps 54.3 -20 bps 54.8 58.1 -336 bps Employee cost 5.7 5.8 -10 bps 5.1 63 bps 5.3 5.1 12 bps A&SP 6.7 8.1 -141 bps 8.4 -164 bps 8.6 8.1 50 bps Other expenditure 15.1 13.9 119 bps 12.3 279 bps 12.3 12.3 7 bps Income tax rate (%) 20.1 15.4 463 bps 18.0 208 bps 19.7 20.5 -74 bps Source: Company data, I-Sec research

Marico, May 5, 2020 ICICI Securities

Business performance and conference call takeaways India Business (77% of sales)  Domestic revenue growth declined 8% YoY with 3% volume decline.  In terms of markets, rural general trade (GT) declined 15% YoY, while urban GT declined 12% YoY in volume terms due to Covid-19 disruption after showing positive trends in Jan-Feb 2020.  Company experimented with various models of supply chain in order to reach the consumer after lockdown restrictions such as Direct to Home, tie-up with food aggregators, Telecalling etc. Management expects wholesale channel to further have liquidity issues.  In terms of distribution channels, modern trade (MT) (17% contribution to Indian business in FY20) grew 44% and E-commerce (5% contribution to Indian business in FY20) grew 29%. Overall urban grew by 4%. CSD posted decline of 17% as they stopped operations in last week of March.  Management has indicated more participation in Foods, Health and Hygiene categories (launched Mediker SafeLife Hand Sanitizer and Veggie Clean).

Chart 1: Domestic business volume growth

15 12 11 10 9 10 8 8 8 8 6 6 6 6 5 5 3 1 1 1 (%)0

(5) (3) (4) (10) (9)

(15)

Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research

 Average copra costs in Q4FY20 were flattish YoY. Management expects slight deflationary trend in copra prices in FY21 given the sudden fall in demand for coconuts.  Prices of other key raw materials except Rice bran oil (+7% YoY) such as, LLP and HDPE were also down by 3% and 15% respectively.  India business operating margin (ex-corporate overheads) expanded by 130bps YoY to 22.8% primarily led by decline in ad-spends. Company aims to maintain margins at 20%+ over medium term.  Parachute reported 8% decline in volume and 12% decline in revenue. The company increased its volume market share to 62% in coconut oil category. Parachute brand strengthened its leadership position with volume market share gain of 268bps in the quarter. Management maintained its 5-7% volume growth target for the medium-term.

Marico, May 5, 2020 ICICI Securities

 Company is ready to take judicial pricing actions in Parachute and other brands to increase the value proposition of the brand as the management expects consumer to become value conscious with declining income levels.

Chart 2: Parachute volume growth Chart 3: Parachute value growth

20 50 41 15 15 38 15 40 11 12 32 9 9 9 30 26 10 8 8 24 6 7 6 19 20 16 4 11 5 9 8 (%) (%)10 3 4 0 0 (1) (1) (5) (2) (1) (10) (5) (4)(5) (6) (5) (10) (12) (12) (12) (9) (8) (20) (19)

(15) (30)

Q1FY16 Q4FY16 Q1FY16 Q2FY19 Q1FY20 Q2FY16 Q3FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q3FY19 Q4FY19 Q2FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

 Value-Added Hair Oil (VAHO) reported 11% volume decline while revenue declined 18%. Underperformance of mid and premium segment was due to the discretionary nature within staples.  Marico increased volume market share to 35% and maintained value market share at 26%. Management noted that Nihar Naturals Shanti Amla Badam expanded its volume market share by 88bps to further strengthen its leadership position in Amla hair oils. Parachute Advansed Aloe Vera Enriched Coconut Hair Oil and Hair & Care Dry Fruit Oil posted healthy growth and have been scaled up to national level. Management expects premium non-sticky hair oil within VAHO will suffer the most.  Recovery in VAHO will be done by (1) aggressively participating in economy segment with Sarson Amla and Nihar Shanti Amla, (2) pricing correction and solving equity issue in mid segment and, (3) participating more aggressively in premium format (hair fall, almond etc.).

Chart 4: VAHO volume growth Chart 5: VAHO value growth

25 21 25 19 20 19 20 20 14 15 15 15 12 11 12 12 12 11 11 11 12 11 9 9 9 9 9 10 10 7 7 10 8 8 7 7 5 5 (%) 5 (%) 1 0 0 0 (5) (5) (10) (7) (6) (10) (7) (8) (15) (13) (11)

(15) (12) (20) (17)(18)

Q2FY18 Q2FY18 Q1FY19 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q3FY18 Q4FY18 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

Marico, May 5, 2020 ICICI Securities

 Saffola edible oils grew 25% driven by 25% volume growth on a strong base. Volume growth was led by pantry stocking of essential items on back of Covid-19 outbreak. Healthy growth in traditional channels but higher salience of the brand in MT and E-commerce led to outperformance. The brand increased its volume market share to c.76% in the super premium refined edible oils segment. The company remains optimistic and expects double digit growth for FY21 driven by increased in-home eating trend.

Chart 6: Saffola volume growth Chart 7: Saffola value growth

30 30 25 25 25 25 18 20 17 20 13 15 15 15 11 11 14 13 10 15 11 10 8 10 6 6 5 9 9 8 (%) 4 4 3 3 (%)10 7 7 6 5 2 1 4 5 0 5 3 0 1 (5) (1) 0 (10) (5) (3) (9) (4)

(15) (10) (8)

Q2FY17 Q3FY20 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q4FY20

Q2FY18 Q1FY19 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q3FY18 Q4FY18 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

 New segments posted strong performance. Healthy foods segment (c.15% of Saffola franchise) grew 22% YoY driven by Saffola Oats franchise, consistent communication, periodic distribution expansion and increased traction in MT & E- commerce. Saffola Masala Oats strengthened its value market share to 86%. Saffola FITTIFY Gourmet and Coco Soul range launched last year received positive response in Jan-Feb period. Management expects increase in in-home food consumption and preference towards healthier options within Foods. Male grooming segment declined by 9% in volume terms. Premium Hair Nourishment sales declined 19% YoY in terms of volume while Livon Serums had a high single digit growth in FY20 which was offset by weak performance in new launches. Kaya Youth O2 in Premium Skin Care now has presence in GT in Mumbai, Pune and Delhi, MT and E-commerce in top 8 metros.

International Business (23% of sales)  International business revenue declined 6% in constant currency terms, 5% decline on a reported basis due to consumption slowdown and Covid-19 led restrictions.  Operating margin (ex-corporate overheads) declined 110bps YoY to 18% due to significant increase in ad-spends for new launches. Management targets 20% EBITDA margin in the international business over the medium term.  Bangladesh reported 6% cc sales growth despite lockdown restriction in the last week of March. Parachute coconut oil (constitutes 70% of Bangladesh revenue) maintained leadership position with c.82% volume market share and registered 6% sales decline in cc terms. Non-coconut oil business (30% of Bangladesh sales) grew 26% in cc terms driven by double-digit growth in VAHO. Launched Mediker SafeLife Hand Sanitizer and Hand Wash. Management expect double-digit growth

Marico, May 5, 2020 ICICI Securities

in medium-term for Bangladesh with non-coconut portfolio to increase to 35% by FY22. However, FY21 will face some macro headwinds as the country depends highly on USA and Europe which are likely to face macro issues.  South East Asia (mainly Vietnam and Myanmar) revenue grew 5% in cc terms. Vietnam posted 1% growth in cc terms due to flat growth in Home and Personal care business. Launched X-Men Go Hand Sanitizer.  MENA business declined by 50% in cc terms. Covid-19 led supply chain halt led to this decline.  South Africa business (including Isoplus) revenue declined by 26% in constant current terms driven by macro headwinds and Covid-19 restrictions. Management targets revival of business in this region over the medium term led by new launches.

Chart 8: International business revenue growth (reported)

25 21 20 18 16 14 15 13 9 9 9 10 8 8 6 (%) 4 5 5 2 0 1 0 (1) (5) (5)

(10) (8) (8)

Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research

Marico, May 5, 2020 ICICI Securities

Chart 9: Consolidated revenue growth Chart 10: Consolidated EBITDA margin

25 22 21 21 21 20 20 20 20 20 19 19 19 15 19 19 19 19 15 18 18 15 13 18 18 17 17 9 17 10 7 7 16 (%) 6 6 (%)16 5 2 0 14 0 (1) (0) (5) (2) 12 (4)

(10) (8) (7) 10

Q2FY19 Q3FY20 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q4FY20

Q3FY16 Q4FY17 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 11: Standalone revenue growth Chart 12: Standalone EBITDA margin

25 23 24 20 22 20 17 22 21 20 20 15 12 20 19 18 19 18 18 10 18 18 18 10 8 18 17 17 17 7 7 6 17 17 (%) 5 4 5 (%) 16 5 16 15 15 1 1 0 0 14

(5) (3) 12 (5) (4)

(10) (8) (8) 10

Q4FY16 Q3FY17 Q1FY20 Q4FY20 Q1FY16 Q2FY16 Q3FY16 Q1FY17 Q2FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q2FY20 Q3FY20

Q1FY17 Q4FY17 Q2FY20 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q2FY17 Q3FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q3FY20 Q4FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 13: Mean P/E and standard deviations

55 MRCO P/E -1 Std Dev. Mean +1 Std Dev. 50 45 40 35

(x) 30 25 20

Jan-11 Jan-13 Jan-15 Jan-17 Jan-19

Sep-11 Sep-13 Sep-15 Sep-17 Sep-19

May-10 May-12 May-14 May-16 May-18 May-20

Source: Company data, I-Sec research

Marico, May 5, 2020 ICICI Securities

Financial summary

Table 4: Profit & Loss statement Table 7: Cashflow statement (Rs mn, year ending March 31) (Rs mn, year ending March 31) FY19 FY20 FY21E FY22E FY19 FY20 FY21E FY22E Net Sales 73,340 73,150 72,578 78,996 Operating Cashflow 9,970 11,860 11,431 12,809 Operating Expenses 60,530 58,460 57,666 62,177 Working Capital 210 330 518 (468) EBITDA 12,810 14,690 14,912 16,818 Changes % margins 17.5 20.1 20.5 21.3 Capital Commitments (1,490) (1,940) (1,452) (1,548) Depreciation & Amortisation 960 1,400 1,475 1,595 Free Cashflow 8,690 10,250 10,497 10,793 Gross Interest 240 500 550 605 Cashflow from (3,510) (440) (130) (129) Other Income 1,030 1,240 1,321 1,420 Investing Activities Recurring PBT 12,640 14,030 14,208 16,038 Issue of Share Capital - - - - Less: Taxes 3,160 3,310 3,481 4,010 Inc (Dec) in Borrowings 290 (1,210) (1,100) (3,405) Less: Minority Interest (180) (220) (218) (238) Dividend paid (6,820) (10,250) (8,385) (9,353) Net Income (Reported) 11,180 10,210 10,508 11,791 Chg. in Cash & Bank (20) 450 2,333 (545) Extraordinaries (Net) 1,880 (290) - - balance Recurring Net Income 9,300 10,500 10,508 11,791 Closing cash & balance 386 930 3,263 2,719 Source: Company data, I-Sec research Source: Company data, I-Sec research

Table 5: Balance sheet Table 8: Key ratios (Rs mn, year ending March 31) (Year ending March 31) FY19 FY20 FY21E FY22E FY19 FY20 FY21E FY22E Assets Per Share Data (Rs) Total Current Assets 32,000 31,820 33,159 34,440 EPS 7.2 8.1 8.1 9.1 of which cash & cash eqv. 5,520 2,790 5,123 4,579 Cash EPS 9.4 9.0 9.3 10.4 Total Current Liabilities & 13,510 14,600 14,128 15,431 Dividend per share (DPS) 4.8 6.8 6.5 7.3 Provisions Book Value per share (BV) 23.2 23.4 25.1 27.0 Net Current Assets 18,490 17,220 19,031 19,009 Investments 1,790 2,240 2,232 2,322 Growth (%) Net Fixed Assets 11,300 13,790 13,766 13,720 Net Sales 16.0 (0.3) (0.8) 8.8 Capital Work-in-Progress 450 580 580 580 EBITDA 12.6 14.7 1.5 12.8 Total Assets 32,030 33,830 35,609 35,630 PAT 14.2 12.9 0.1 12.2 DPS 11.8 42.1 (3.7) 11.5 Liabilities Borrowings 3,690 5,000 4,437 1,782 Valuation Ratios (x) Deferred Tax Liability (1,760) (1,530) (1,530) (1,530) P/E 39.4 34.9 34.9 31.1 Minority Interest 110 130 348 586 P/CEPS 30.2 31.6 30.6 27.4 Equity Share Capital 1,290 1,290 1,290 1,290 P/BV 12.2 12.1 11.3 10.5 Face Value per share (Rs) 1.00 1.00 1.00 1.00 EV / EBITDA 28.3 24.7 24.3 21.6 Reserves & Surplus* 28,700 28,940 31,063 33,502 EV / Sales 5.0 5.0 5.0 4.6 Less: Misc. Exp. n.w.o. Net Worth 29,990 30,230 32,353 34,792 Operating Ratios Total Liabilities 32,030 33,830 35,609 35,630 Raw Material / Sales (%) 54.8 51.2 50.2 50.1 Source: Company data, I-Sec research Employee cost / Sales (%) 6.4 6.5 6.9 6.6 Other exps / Sales (%) 21.4 22.2 22.4 22.1 Table 6: Quarterly trends Other Income / PBT (%) 8.1 8.8 9.3 8.9 Effective Tax Rate (%) 21.8 24.1 24.5 25.0 (Rs mn, year ending March 31) Working Capital (days) 49.2 37.5 35.2 34.5 Jun 19 Sep 19 Dec 19 Mar 20 Inventory Turnover (days) 70.2 68.9 65.0 64.8 Net sales 21,660 18,290 18,240 14,960 Receivables (days) 25.7 26.9 26.6 26.4 % growth (YoY) 6.9 (0.4) (2.0) (7.0) Payables (days) 47.0 48.8 47.0 47.3 EBITDA 4,610 3,530 3,730 2,820 Net D/E (x) (0.2) (0.2) (0.3) (0.3) Margin (%) 21.3 19.3 20.4 18.9 Other income 280 350 290 320 Profitability Ratios (%) Extraordinaries (Net) (190) - - (100) Net Income Margins 12.7 14.4 14.5 14.9 Net profit 3,270 2,470 2,720 2,040 RoACE 30.4 30.6 29.2 32.1 Source: Company data, I-Sec research RoAE 33.6 34.9 33.6 35.1 Dividend Payout 62.8 100.4 79.8 79.3 Dividend Yield 1.7 2.4 2.3 2.5 EBITDA Margins 17.5 20.1 20.5 21.3 Source: Company data, I-Sec research

Marico, May 5, 2020 ICICI Securities

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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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