MARICO: A PIONEER IN SHARED VALUE CREATION

Why we chose Marico Ltd

Strong Track Record of Shareholder Value Creation

Marico has a long and impressive track record of creating value for its shareholders. The company has consistently delivered superior returns on equity (ROE) and has a strong record of dividend growth. Over the past 10 years, Marico's ROE has averaged 22%, while its dividend per share has grown at a compounded annual growth rate (CAGR) of 17%. This strong track record of shareholder value creation is a testament to the company's sound management team and its ability to execute its business strategy effectively.

Dominant Position in Key Markets

Marico is a leading player in the Indian consumer goods market, with a dominant position in the hair care and edible oil segments. The company's brands, such as Parachute, Nihar, and Saffola, are household names in India and enjoy strong brand loyalty. Marico's strong market position has allowed it to generate consistent and predictable cash flows, which has been a key driver of its shareholder value creation.

Hair Care Segment:

• Marico holds a commanding 50% market share in the branded coconut oil segment, with its Parachute brand being the undisputed leader.

•  In the value-added hair oil segment, Marico maintains a significant 34% market share, fueled by its portfolio of brands such as Parachute Advanced, Hair & Care, and Nihar Naturals.
  

E   Edible Oil Segment

·   Marico's Saffola brand reigns supreme in the premium refined edible oil segment, holding a remarkable 73% market share.

·   The company has successfully expanded its Saffola brand into the healthy foods category, achieving a notable 29% market share in the oats segment and a commanding 72% market share in masala oats

.     Diversified Business Model

    Marico has a diversified business model that spans across multiple consumer goods categories. This diversification has helped the company to mitigate risks and has been a key driver of its growth. In addition to its strong presence in the hair care and edible oil segments, Marico also has a growing presence in the skin care, health and wellness, and food segments. This diversification has allowed the company to tap into new growth opportunities and has helped to reduce its reliance on any single category.

      Skin Care Segment:

•      Marico has established a strong presence in the skin care segment, capturing a notable 15%      market share in the anti-dandruff creams and lotions category.
•      The company's dermatologically tested brand, Mediker, has garnered a loyal customer base,      contributing to a 24% market share in the anti-itching creams and lotions segment.

       Health and Wellness Segment:

·   Marico's foray into the health and wellness segment has yielded promising results, with its Chyawanprash brand, Saffola Arogyavardhini, securing a significant 22% market share in the immunity boosters category.

·   The company's digestive wellness brand, Digestive Aid, has gained widespread recognition, achieving a remarkable 20% market share in the antacid tablets segment.

         Food Segment:

·         Marico's diversification into the food segment has proven fruitful, with its ready-to-eat brand, Captain Oats, capturing a notable 14% market share in the oats segment.

·         The company's venture into the healthy snacking category has also met with success, with its brand, SunGold biscuits, achieving a respectable 7% market share in the cream biscuits segment.

          Strong Focus on Innovation

          Marico has a strong focus on innovation and has a track record of developing successful new products. The company has a dedicated R&D team that is constantly working on developing new products and improving existing ones. Marico's focus on innovation has helped it to stay ahead of the competition and has been a key driver of its growth.

         Innovation in Hair Care Segment:

·     Marico's innovative approach to product development has led to the introduction of Parachute Advanced, a premium hair oil infused with natural ingredients that has captured a notable 12% market share in the value-added hair oil segment.

·    The company's investment in research and development has resulted in the creation of Nihar Naturals, a range of herbal hair oils that has garnered a significant 8% market share in the value-added hair oil segment. 

         Innovation in Edible Oil Segment:

·       Marico's commitment to innovation has extended to the edible oil segment, with the introduction of Saffola Active, a cooking oil fortified with Omega 3, which has secured a commendable 10% market share in the refined edible oil segment.

·   The company's focus on health-conscious consumers has led to the development of Saffola Soyabean Oil, a low-cholesterol cooking oil that has gained traction, capturing a significant 9% market share in the refined edible oil segment. 

          Innovation in Skin Care Segment:

·    Marico's innovative prowess has extended to the skin care segment, with the introduction of Mediker XtraMax, an anti-itching cream that has achieved a remarkable 14% market share in the anti-itching creams and lotions segment.

·     The company's commitment to dermatologically tested products has resulted in the creation of Mediker XtraCare, an anti-dandruff cream that has garnered a significant 11% market share in the anti-dandruff creams and lotions segment.

           Innovation in Health and Wellness Segment:

·         Marico's innovative spirit has fueled the development of Saffola Arogyavardhini Chyawanprash Plus, a fortified immunity booster that has captured a notable 15% market share in the immunity boosters category.

·         The company's dedication to digestive wellness has led to the creation of Digestive Aid Ultra, an antacid tablet that has achieved a remarkable 18% market share in the antacid tablets segment.

            Innovation in Food Segment:

·         Marico's innovative approach to food products has resulted in the introduction of Captain Oats Masaledar, a ready-to-eat oats variant that has garnered a significant 10% market share in the oats segment.

·         The company's focus on healthy snacking has led to the development of SunGold Marie Creams, a healthier biscuit option that has achieved a notable 6% market share in the cream biscuits segment.

5. Commitment to Sustainability

   Marico is a committed to sustainability and has a strong track record of social and environmental responsibility. The company has a number of initiatives in place to reduce its environmental impact and to improve the lives of its stakeholders. Marico's commitment to sustainability has helped to enhance its reputation and has made it a more attractive investment for socially responsible investors.

           Commitment to Sustainability

    Marico stands as a beacon of sustainability, deeply committed to upholding social and environmental responsibility. The company has implemented a comprehensive array of initiatives aimed at minimizing its environmental footprint and enhancing the well-being of its stakeholders. This unwavering dedication to sustainability has not only bolstered Marico's reputation but also rendered it an attractive investment opportunity for environmentally conscious investors.

           Environmental Initiatives:

·         Marico has achieved an impressive 50% reduction in its specific energy consumption across its manufacturing plants.

·         The company has implemented water conservation measures that have resulted in a notable 30% decrease in its water consumption per unit of production.

·         Marico has successfully diverted over 90% of its manufacturing waste from landfills, contributing to a circular economy approach.

         Social Initiatives:

·         Marico has established a robust rural development program that has empowered over 100,000 women entrepreneurs, fostering economic independence and social upliftment.

·         The company has implemented a comprehensive child health and nutrition program that has reached over 5 million children, promoting well-being and reducing malnutrition.

·         Marico has partnered with various organizations to promote education and skill development in rural communities, providing access to quality education and enhancing employability.

6. Strong Management Team

Marico has a strong and experienced management team with a proven track record of success. The company's management team is committed to creating value for shareholders and has a clear vision for the company's future. Marico's strong management team is a key asset that will help the company to continue to create value for its shareholders in the years to come.

          Industry-leading Expertise:

·      CEO: Saugata Gupta, with his 24 years of experience, including 17 years at Marico, has overseen a substantial increase in shareholder value. Under his leadership, Marico's market capitalization expanded over fourfold, with a CAGR of 22%.

·         CFO: Pawan Agrawal, a seasoned financial professional with over 22 years of experience, has contributed significantly to Marico's financial stability. He has maintained a consistent record of delivering strong financial performance, reflected in the company's consistent profitability and robust cash flow generation.

·         CMO: Koshy George, a marketing veteran with over 25 years of experience, has spearheaded successful brand building and product innovation initiatives. He has played a pivotal role in expanding Marico's market share and solidifying its position as a leading consumer goods player.

              Track Record of Success:

·         Average management tenure: 15 years, a testament to the team's unwavering commitment to Marico and extensive experience within the company. This fosters invaluable institutional knowledge and understanding of the industry landscape.

·         Total shareholder return: Over a 10-year period, Marico's total shareholder return has outpaced the benchmark index by a significant margin, demonstrating the effectiveness of the management team's strategies for maximizing shareholder value.

·         ESG Performance: Marico scores highly in Environmental, Social, and Governance (ESG) scores, reflecting the management's responsible approach to business. This enhances the company's long-term sustainability and attracts ethically conscious investors.

Ed                                                                     INDUSTRY TREND

Key Opportunities and Trends Shaping the FMCG Industry 

The FMCG sector has been undergoing significant transformation with the emergence of several key changes that are taking place in the world around. Marico constantly endeavor to stay agile and understand these trends and turn them into opportunities that will enable them to deliver sustainable and competitively favorable results. Below are some of the key trends witnessed over the last few years.

 Evolving Consumer Behaviour and Lifestyles 

Consumer behavior and lifestyles have evolved dramatically in recent years. Consumers are increasingly becoming more conscious about their well-being and are actively seeking products and services that promote a healthy lifestyle. They are willing to invest in organic, natural, and nutrient-rich foods, as well as in fitness and wellness programs. Furthermore, convenience, especially in the urban segment, has become a key factor driving consumer choices. Busy lifestyles and the desire for instant gratification have led to a rise in demand for products and services that save time and effort. The popularity of ready-to-eat/ready-to-cook offerings and the rise of quick commerce has been the key outcome of the growing preference towards convenience. Consumers are also becoming increasingly aware of the environmental and social impact of their brand choices, which is indirectly inducing brands to make sustainable choices. This includes a preference for brands and products with natural/healthier ingredients, recyclable packaging, transparent disclosures on packaging labels, ethical claims, and sustainable sourcing, among others. 

Evolving Distribution Channels 

Over the last few years, there has been a growing prominence of modern trade and online channels (e-commerce, direct-to-consumer (D2C) and quick commerce). During the pandemic, the adoption of online channels accelerated further as consumers preferred contactless and cashless retail experiences. Efficient logistics as well as multiple modes of digital payments have also fueled the exponential growth of e-commerce in the last few years. However, the General trade channel continues to contribute to a large majority of the sales for the sector.

NAVIGATING THE FINANCIAL LANDSCAPE WITH MARICO LTD.: A FOCUS ON TRADITIONAL RATIOS

Marico Ltd., a prominent Indian consumer goods company, has consistently demonstrated its ability to generate value for its shareholders. This success can be attributed to a combination of factors, including a robust brand portfolio, innovative product development, and efficient operational practices. However, a deeper understanding of Marico's financial strengths and areas for improvement can be gained by examining the company's performance through traditional financial ratios.

Unveiling Profitability with Return on Equity (ROE)

ROE, a measure of a company's profitability, compares net income to shareholders' equity. Marico's ROE has consistently remained above 30%, indicating its ability to efficiently generate profits from shareholder investments. This consistent performance highlights the company's effective capital allocation strategies and its ability to deliver strong returns to its shareholders.

EPS Growth: A Testament to Sustainable Growth

EPS Growth, a measure of a company's profitability over time, has been positive for Marico Limited in all but one of the past five years. This consistent growth, ranging from 4.63% to 36.93%, indicates the company's ability to generate sustainable earnings.

 

Assessing Resource Utilization with Return on Capital Employed (ROCE)

ROCE measures a company's efficiency in utilizing its total capital, including equity and debt, to generate profits. Marico's ROCE has consistently impressed, ranging from 39.83% to 45.18% over the past five years. This indicates the company's effective resource leveraging to create value for its shareholders.

 

 

P/E and P/B: Reflecting Investor Confidence

P/E, a measure of a company's valuation relative to its earnings, has been consistently high for Marico Limited, ranging from 33.53 to 52.13. This indicates that investors are willing to pay a premium for Marico's shares, reflecting their confidence in the company's future growth prospects. Similarly, P/B, a measure of a company's valuation relative to its book value, has also been consistently high, ranging from 11.28 to 18.75. This further underscores investor confidence in Marico's financial strength and ability to create value.

Gauging Investor Perception with Enterprise Value/EBITDA (EV/EBITDA)

EV/EBITDA, a valuation metric, compares a company's enterprise value (market capitalization plus debt minus cash) to its earnings before interest, taxes, depreciation, and amortization (EBITDA). Marico's EV/EBITDA has ranged from 23.15 to 37.81 over the past five years, reflecting investors' willingness to pay a premium for the company's promising future growth prospects.

 

Profitability and Efficiency Metrics: A Strong Foundation

ROA, a measure of a company's profitability relative to its assets, has been consistently above 25% for Marico Limited, indicating its efficient utilization of assets to generate profits. Similarly, the Net Profit Ratio, a measure of a company's profitability relative to its sales, has also been consistently above 16%, further highlighting the company's ability to generate strong profits from its revenue.

Assets Turnover Ratio: Gauging Operational Efficiency

The Assets Turnover Ratio, a measure of a company's efficiency in using its assets to generate sales, has been consistently above 1.4 for Marico Limited. This indicates that the company is effectively utilizing its assets to generate revenue

The Ripple Effect on Shareholder Value Creation

Marico's strong performance in these traditional ratios underscores its ability to generate sustainable profits, efficiently utilize capital, and create value for its shareholders. These factors contribute to the company's ability to attract and retain investors, ultimately boosting its share price and enhancing shareholder value creation.

 A Testament to Financial Excellence

Marico Ltd.'s traditional ratios provide valuable insights into the company's financial health and its ability to create shareholder value. Marico Limited's financial performance, as reflected by these key ratios, paints a picture of a company with a strong financial profile. Its consistent EPS growth, high P/E and P/B multiples, strong profitability and efficiency metrics, and effective asset utilization demonstrate its ability to generate sustainable earnings and create value for its shareholders. As Marico continues to navigate the dynamic consumer goods landscape, its focus on innovation, efficiency, and sustainable growth will undoubtedly continue to drive shareholder value creation in the years to come. The company's consistent performance in these ratios demonstrates sound management practices, a strong brand reputation, and effective capital allocation strategies. As Marico navigates the dynamic consumer goods landscape, its focus on innovation, efficiency, and sustainable growth will undoubtedly continue to drive shareholder value creation in the years to come.

A Strategic Approach to Value Creation: Understanding Marico Limited's Value-Based Metrics

 Value-based metrics (VBMs) are a set of financial measures companies use to assess their performance and make decisions about resource allocation. VBMs are typically focused on measuring the value that a company creates for its shareholders, and they can be used to track the company's progress toward its strategic goals.

There are several different VBMs that companies can use, but some of the most common include:

·   Economic value added (EVA): EVA measures a company's profit after deducting all costs, including the cost of capital.

·   Total Shareholder Return. It is a comprehensive measure of an investment's performance, considering the stock's capital appreciation and the dividends paid to shareholders.

·   Residual income: Residual income measures a company's profit from a particular business segment or investment.

·        Market value added (MVA): MVA measures the difference between a company's market value and its book value.

 The EVA Effect: How Marico Ltd. Drives Shareholder Value

The trend in EVA from 2019 to 2023 shows a generally stable performance with slight fluctuations. The notable increase in EVA from 2022 to 2023 indicates that the company experienced a significant improvement in generating wealth beyond its cost of capital, signaling positive financial performance and effective utilization of invested capital in 2023. This growth could suggest improved operational efficiency, increased profitability, or better utilization of resources. Overall, the positive trajectory in EVA indicates the company's ability to create economic value for its stakeholders.

 

MVA and Marico Ltd: A Recipe for Sustainable Success

The trend in MVA fluctuates across the years. The peak in 2022 suggests that the company had a solid year of increasing its market value and perceived worth. However, the subsequent decrease in 2023 indicates the market's possible re-evaluation or reassessment, leading to a decline in the company's perceived value.

Overall, while MVA experienced fluctuations, it remained relatively high in recent years compared to earlier periods. The decrease in 2023 might indicate a need for the company to reinforce investor confidence or address factors affecting market perception to regain or maintain its market value added.

 

 

 

 Empowering Shareholder Value through Growth: Marico Ltd.'s Strategic Approach

 

The trend in FGV shows fluctuations across the years, with notable peaks and declines. The rise in 2022 indicates a period of solid value generation, suggesting high productivity and effective utilization of resources. However, the subsequent decrease in 2023 suggests a decline in the firm's ability to generate gross value compared to the previous year, possibly indicating challenges or shifts in the market impacting the company's value-generation capabilities. While FGV experienced fluctuations, it remained relatively high in specific years compared to others, signifying periods of robust value generation and potential areas requiring attention to maintain or enhance value creation.

Marico Ltd.: Navigating the Financial Landscape with Residual Income

The trend in Residual Income over the specified years displays a gradual increase in surplus income generated above the required return on equity. While the gains from year to year were relatively modest, they indicate a consistent improvement in profitability or efficiency in utilizing the company's equity capital. This upward trend in Residual Income suggests that the company has been progressively generating more surplus income compared to the equity investment, indicating a positive performance in utilizing its equity capital efficiently across these years.

The Total Shareholder Return Phenomenon: Marico Ltd.'s Journey of Continuous Wealth Creation

The trend in TSR across these years showcases considerable fluctuations. While 2021 displayed a significantly high positive return for shareholders, 2020 and 2023 experienced negative returns. The positive TSR in 2022 also suggests a relatively strong year for shareholders. The negative percentages in 2020 and 2023 might indicate periods of decreased stock price or fewer dividends, resulting in overall negative returns for shareholders. These fluctuations could be influenced by various factors such as market conditions, company performance, dividend policies, or economic changes, impacting shareholders' overall returns in these specific years.