Fundamental Analysis Of Marico: Renowned investor Philip Fisher advocated purchasing stocks that you see around yourself. They are easy to understand and you can put your personal understanding of their products to good use. The ubiquitous blue bottle of ‘Parachute Coconut Oil is one such product found almost in every home.
We grew up using it and savoring its smell. Have you ever thought about performing fundamental analysis of Marico, the company that owns the Parachute and Saffola brands among others?
In this article, we attempt to do exactly that. We start by getting ourselves acquainted with Marico as a company and India’s FMCG landscape. After that, we will learn how it earns its revenues and how it has grown over the years. Later, we perform ratio analysis and briefly read about its future plans.
Fundamental Analysis Of Marico
In this study of fundamental Analysis of Marico, we present the company history, overview, business segments, financials, future plans, and more.
Company History and Overview
Marico traces its origins back to 1971 when Harsh Mariwala joined the family business as a young graduate. A visionary, he pictured a branded FMCG market for refined edible and coconut oils in small packs in India.
He charts a national distribution network for the iconic ‘Parachute’ brand. For the next 19 years, he scaled the family business. In April 1990, he incorporated Marico, and the rest is history.
Under the chairmanship of Harsh Mariwala, Marico has grown multi-fold to become one of the largest Indian consumer goods companies. The company has a portfolio of well-known brands including Saffola, Coco Soul, Set Wet, Parachute, Livon, Revive, Civil, Hercules, and Grace.
Its products across categories such as hair care, skin care, edible oils, health foods, male grooming, and fabric care cater to the needs of people in over 25 countries across Asia and Africa.
It employs around 1,657 people and sells 1.5+ billion packs every year. Marico’s ‘Parachute’ is the world’s largest coconut oil brand. It has 6 manufacturing plants in India and 8 overseas.
Over the years, the FMCG company has grown organically and inorganically as and when the management came across attractive opportunities. It made 13 acquisitions in the last 14 years.
We now have a good understanding of Marico Ltd. Let us now move ahead to know Marico’s business segments and FMCG industry as part of our fundamental analysis of Marico.
The table below presents the business segments of Marico. in detail.
|Particulars||(Rs. Cr.)||% Share|
|Premium Personal Care||582||6%|
|Refined Edible Oils||1,831||19%|
|Value Added Hair Oils||1,538||16%|
|I||Revenue from Domestic Business||7,324||77%|
|II||Revenue from Exports||2,179||23%|
|I + II||Total Revenue in FY22||9,512||100%|
The fast-moving consumer goods (FMCG) is the fourth-largest sector in India. It is divided into three segments: household & personal care, healthcare, and food & beverages. These three sub-segments account for 50%, 31%, and 19% share of the sector respectively.
Urban markets contribute most to the overall FMCG demand in India. However, in the last few years except FY21, the rural and semi-urban markets have grown faster than the urban.
As per the data from IBEF, the Indian FMCG industry is projected to grow at a CAGR of 14.9% from $ 110 billion in 2020 to $ 220 billion by 2025. Growing disposable income, rapid urbanization, increased awareness, a rising share of the working population, and changing lifestyles will bring higher growth to the sector.
We got an overview of India’s FMCG landscape. Next, we cover how Marico has grown over the last few years.
Fundamental Analysis of Marico – Financials
Revenue and Net-Profit Growth
During the past five years, Marico has grown its revenues at a CAGR of 8.51%. During the same period, its net profit grew annually at a rate of 7.47%. However, much of this growth has been value-led and not volume-led. Factoring out the general inflation and the price hikes the company took, the volume growth of Marico has been slow.
It is expected that the company’s house of brands unit for D2C brands may bring the next phase of growth for the company as a whole.
The table below presents the past five years’ revenue and net-profit figures for Marico along with its profit margins.
|Year||Revenue (Rs. Cr.)||Net Profit (Rs. Cr.)||OPM||NPM|
We can observe that Marico enjoys strong brand equity with its mature brands. The company has good profit margins which have remained stable over the years. The company has almost negligible interest charge which gets reflected in its low variance in the profit margins.
Debt, Return Ratios, and More
Marico Ltd. is a mature company with a low debt-to-equity ratio of only 0.14. Additionally, as an FMCG company, it has high returns on capital employed, and likewise high return on equity. Because of all this, it trades at a high P/E of 55.9.
|Year||RoCE (%)||RoE (%)|
Fundamental Analysis of Marico – Future Plans
So far we have only looked at the past performance of the company. This space is devoted to getting a grasp of what lies ahead for Marico Ltd.
- The management has been very active in D2C acquisitions. The company has purchased several brands such as Just Herbs, Beardo, and True Elements to ride the D2C-led tectonic shift. As of now, these digital brands are being run under a separate unit.
- In FY22, the company spent Rs. 132 crores on capital expenditure. In addition to this, Marico invested Rs. 29 crores in research and development. The company will gain from these activities in the future. However, on a proportionate basis, the size of these investments is too small compared to the overall size and revenues of Marico Ltd.
Fundamental Analysis of Marico – Key Metrics
We are almost at the end of our fundamental analysis of Marico. Let us take a quick look at its key metrics.
|CMP||Rs. 536||Market Cap (Cr.)||Rs. 69,500|
|Stock P/E||55.9||Face Value||Rs. 1.0|
|ROE||36.28%||Price to Book Value||20.3|
|Debt to Equity||0.14||Promoter Holding||59.5%|
|Net Profit Margin||16.83%||Operating Profit Margin||17.67%|
|Dividend Payout Ratio||97.4%||Dividend Yield||1.72%|
From what we have read so far, and the table above, we can conclude the following things about Marico Ltd.
- Marico is a mature company with a high P/E of 55.9. It exhibits consistency in revenues and low volume growth. Hence, the stock may rise at the same rate as it has in the past. It gave an annualized return of 10.75% to its investors over the last 5 years.
- The high dividend payout ratio signifies that the management doesn’t see many growth opportunities in the near future.
- A low debt-to-equity ratio with high return ratios and profit margins makes Marico a very stable investment avenue.
- Its promoter holding remained almost the same over the quarters signaling promoters’ belief in the longevity and growth of the business.
In this article, we performed a fundamental analysis of Marico. Summing it up, we can say that Marico is one of the most stable and best-run companies in the Indian stock market.
Marico’s D2C play is the only catalyst visible in the near future which can take the returns of the stock to new heights.
What kind of companies do you prefer in your portfolio? Is it high-growth potential stocks like Zomato or settled, mature companies like Marico? How about we carry on this conversation in the comments below?
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Vikalp Mishra is a commerce graduate from the University of Delhi. He likes to write on finance, money and business. He is a voracious reader with a genuine interest in investing. Drop him a mail at email@example.com.
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Merico is established fundamentally strong and well for long term invsestor like me. This stockis in my dmat account as well for forever. Thanks
It feels good to know that our article found a passionate reader like you. However, one must not become ignorant in the disguise of ‘long term investing’. We must keep tracking the sales and volume growth of FMCG companies to get some sense of the future trajectory of the stock.