Recommendation From Personal care Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

MARICO LTD:. GOOD MOMENTUM ALL THE WAY

HERE IS WHY
✓Strong brand recall
✓Extraordinary returns for stakeholders
✓Strong financials supported with liquidity

Marico Ltd. is one of India’s leading con-sumer goods compa-nies with its business in health, beauty and wellness segments.It has a presence across 25 countries in the emerging markets of Asia and Africa. The com-pany has built a strong brand recall in various segments such as hair care (Parachute, Hair and Care), edible oils (Saffola), hygiene and skin care (Livon), male grooming (Set Wet, Beardo) and fabric care (Revive). The domestic market contributes 77 per cent to the revenues while the international business does the rest. The company reported net sales of Rs8,048 crore in FY21 compared to Rs7,315 crore in FY20. That is a growth of nearly 10 per cent.

The core portfolio of coconut oil, Saffola edible oils, value-added hair oils, and Saffola Oats showed robust performance. The EBIDTA stood at Rs1,685 crore in FY21 as against Rs1,593 crore in the previous year. That is a growth of over 5.7 per cent. As one of the measures to expand margins by cost control, the company rationalised more than 25 per cent inefficient SKUs to reduce complex hidden costs. Also, the PAT saw a growth of 15.14 per cent, an increase from Rs 1,043 crore to Rs1,201 crore from FY20 to FY21 respectively.

Strong cash balance was witnessed with a growth of nearly 93.8 per cent as can be seen in the cash flows from operating activities increasing from Rs1,214 crore in FY20 to Rs2,353 crore in FY21. Net sales for the quarter ended June 21 stood at almost Rs2,525 crore. That’s a growth of 25.5 per cent QoQ basis and 31.17 per cent YoY basis witnessed on the back of 21 per cent volume growth in domestic business and 21 per cent constant currency growth overseas. The EBITDA exclusive of other income was Rs481 crore which saw a growth of 50.78 per cent QoQ and nearly 3 per cent YoY. The exuberant input costs have kept the margins under pressure.

The management expects them to normalise in the coming quarter. The net profit number stood at Rs365 crore, a growth of 60.79 per cent QoQ but a decline of 6.41 per cent YoY. The flagship brand in coconut oil space, Parachute, is the largest coconut oil brand in the world. It has around 62 per cent market share in India. It has a market share of nearly 27 per cent by revenue in the edible oils segment with its brand Saffola. The Saffola Oats brand is a market leader, especially the ‘masala flavoured’ oats. Over the last 14 years, it has made 13 acquisitions such as X-Men, Set Wet, Nihar, Beardo, etc. that have paved the path to build a stronger brand.

With the Set Wet brand in hair gel, it has acquired 56 per cent market share in the segment. It has a robust distribution network in place with 53 lakh outlets in India out of a total 1.02 crore, which implies huge headroom for growth. The returns for stakeholders have been exceptional. The ROE stood at 38.69 per cent and ROCE stood even higher at 44.85 per cent. It has been rewarding shareholders with a dividend yield of 1.33 per cent. The company has significantly lesser debt in the books with the debt-to-equity ratio at the 0.11 level. Except for premium personal care products, all major brands have grown more than 20 per cent in the quarter, a trend that management expects to sustain in the medium term through strong brand proposition, right pricing and boosting distribution. By virtue of these factors, we recommend to BUY the scrip.