After a long time, we are back with a deep dive article and this time on an FMCG company – Marico. I am sure most of us have used their iconic brands knowingly or unknowingly.

Marico Then

The Marico story begins in 1971 when a 20-year-old commerce graduate Harsh Mariwala joined his family business Bombay Oil Industries Limited (BOIL). He was a third-generation addition to the business. The business was managed by Harsh’s father, three uncles, four cousins, and Harsh Mariwala and the sales were B2B (Business to Business).

By the mid-1980s, the consumer product branch of the business that Harsh Mariwala had built was contributing 80% of BOIL’s turnover. But if it was to become truly big in the FMCG sector, it would have to become a separate, autonomous entity, not part of an organization scattered across disparate businesses such as chemicals and spice extracts. Already, internal conflict over resources and talent was rife. It took 3 years before Harsh finally convinced his family to hive off the consumer products division of Bombay Oil into Marico and then even bought the other partners out!

Marico Now

• Largest coconut buyers in the world • A substantial number of coconuts grown is consumed by Marico • 1 in 3 Indians uses Parachute coconut oil • Crores of coconuts every year used by Marico • Between India, Bangladesh and the Middle East Marico sells 5 cr

containers or bottles of parachute every month!

Why the name Marico?

Marico is named after its founder, Harsh Mariwala, whose grandfather—Vallabhdas Vasanji—came to be known as Mariwala because of his proficiency in trading pepper, which in Gujarati is known as mari.

Vasanji was the nephew of Kanji Moorarji, who came to Mumbai from Kutch in 1862 to trade in spices and agricultural commodities like pepper and ginger. Vasanji joined Moorarji and came to be known as Mariwala later. Mariwala had four sons—Charandas, Jaysinh, Hansraj, and Kishore—who formed Bombay Oil Industries Limited (BOIL) in 1948 and quickly graduated from trading spices to manufacturing coconut oil, vegetable oil, and chemicals in Mumbai and spice extracts in Kerala. Charandas’s son, Harsh Mariwala, at age twenty, joined BOIL in 1971. From there, Harsh Mariwala built India’s largest coconut oil and edible oil brand.

What does Marico actually do?

Marico Limited is one of India’s leading consumer goods companies operating in the global beauty and wellness categories.

They own brands across haircare, skincare, edible oils, immunity-boosting and healthy foods, male grooming, and fabric care.

In India, they touch the lives of one out of every three Indians through their portfolio of brands, such as Parachute, Saffola, Nihar Naturals, Saffola FITTIFY Gourmet, Saffola Immuniveda, Saffola Arogyam, Hair & Care, Parachute Advansed, Mediker, Coco Soul, Revive, Set Wet, Beardo, and Livon.

The international product portfolio includes brands such as Parachute, Parachute Advansed, HairCode, Fiancée, Caivil, Hercules, Black Chic, Code 10, Ingwe, X-Men, Mediker SafeLife, Thuan Phat, and Isoplus.

Headquartered in Mumbai, they are present in over 25 countries across emerging markets of Asia and Africa. They operate eight factories in India, located at Puducherry, Perundurai, Jalgaon, Guwahati, Baddi, Paonta Sahib, and Sanand.

Portfolio of brands

India Product Line

Bangladesh Product Line

Vietnam Product Line

Myanmar Product Line

MENA Product Line

South Africa Product Line

10 Year Financials

For 10 years period above –

• Revenue CAGR – 10% • EBITDA CAGR – 14.3% • Net Profit CAGR – 15.1% • Net Worth CAGR – 13.5%

More Facts-

• Total Shareholder Return CAGR since listing in 1996 – 24% • Top-line CAGR since inception – 16% • Bottom-line CAGR since inception – 23% • Rs 100 invested in Marico in 1996 was worth Rs 20,525 on March 31,

2021

FY21 Snapshot

• Consumers – 126 Million+ households reached | 58,000 villages reached

• Value Chain Partners – 5.3 Million retail outlets reached | 700+ value chain partners associated in India

• 77% revenue from Domestic Business • 23% revenue from International Business

A Strong Distribution Network

Marico says that they have a 5.3mn outlet reach out of the total 10.2 mn outlets, thus providing a huge headroom for growth. The mix of urban-rural of 74%-26% in FY10 has changed to 67%-33% in FY21.

Also, Note – the CSD (Canteen stores department) is an important channel for Marico as shown above. It contributed to 6% of overall sales in FY21.

What is the company doing currently? (Click on the Hyperlinks to know more)

Domestic Markets –

Coconut Oil (CNO)

Value-Added Hair Oils (VAHO)

Saffola Oils

International Markets

Bangladesh

Vietnam

Middle East and North Africa (MENA)

South Africa

New Growth Engines for Marico

There are 3 main growth engines for Marico as of today –

#1 – Foods #2 – Digital brands

#3 – Core Brands (Re-igniting the volume growth trajectory + getting into adjacencies as we saw in Safolla)

Here’s why –

• In FY21 Foods segment crossed the Rs 300 Crores revenue mark. • The Oats portfolio continued to see speedy growth on the back of

increasing penetration and heightened focus on healthy snacking. • Recognizing the strong consumer trend towards health and

immunity, they launched several new products leveraging Saffola’s strong equity – Saffola Honey, Saffola Chyawanamrut, Saffola Immuniveda, Saffola Mealmaker Soya Chunks, and Saffola Oodles.

• Marico will continue to innovate and broaden its play in the Food category with the aim of reaching the Rs 450-500 Crores mark in FY22

• They continue to make investments towards enhancing digital capabilities to stay ahead of the curve.

Inorganic route of growing by Marico

Marico has always been very honest about innovation and the need to stay relevant. Therefore it is no surprise that Marico has a number of acquisitions under its belt. The most notables ones are of course Nihar, Set Wet (Paras), Beardo, and Pure sense.

Interestingly in the Q4FY17 concall, Mr. Saugata Gupta made the following prediction –

They even made some moves around the personal care, food, premium hair care fall, and eCommerce categories!

Safolla Brand – From just Edible oil to a complete foods brand!

Marico was well known for Saffola Edible oil and Parachute Hair oil majorly thanks to their iconic branding and brand recall. However, it was like a double-edged sword as the brand came to be dependent on this a lot.

Having that foresight, the management started diversifying into personal care, men’s grooming, product adjacencies, Digital brands, and converting Saffola into full-fledged foods brands (First Oats, then oodles, soya, honey, etc).

Detailed History of Marico (Click on Hyperlinks to read more)

Phase 1 – 1972–91 – Establishing Parachute and Saffola as Consumer Brands

Phase 2 – 1990–96 – Laying the Foundation for a Sustainably Profitable Edifice

Phase 3 – 1997–2006 – David (Marico) vs Goliath (HUL)

Phase 4 – 2007 to 2012 – Pursuing Inorganic Growth

Phase 5 – 2013 to 2016 – From a hair and Edible company to a multi-product, multi-geography diversified company!

Phase 6 – 2016 to 2021 – Transition to a Future-ready diversified Foods company!

FY16 to FY22 Concall Key Takeaways

FY16 | FY17 | FY18 | FY19 | FY20 | FY21 | FY22

Guidance of the company from FY16 to FY22 – How many times have they met their guidance?

FY16 | FY17 |FY18 | FY19 | FY20 |FY21 |FY22

Out of 24 guidances that the management made since Q1FY16, they met only 9 of them, 8 of them weren’t met and 6 of them were met partially. So that is an average track record of meeting the guidances.

Future

• 850 Cr Foods portfolio by FY24 and 500 Cr this year (FY22) • Portfolio of 3 to 5 digital brands either organically or inorganically by

FY24 with a turnover of 450-500 cr • Soya 900 Cr market, which is growing a little bit every year too. • Honey expected to scale up. • 8142 Cr was the FY21 revenue. As per the management guidance,

FY24 Revenue can easily hit 12000-13000 Cr with similar margins of 18-20% (8-10% growth each year plus new business revenues)!

Summing up Marico

Operational Front

• The main levers of growth Oil, VAHO, Hair Oil, Men’s grooming, Digital brands, and Food’s portfolio are firing on all cylinders.

• Management has been very honest about their mistakes in the past 7 years. (Images attached at end of article)

• Parachute Franchise problems – They solved it in 6 – 8 quarters • Paras Men’s Grooming probs – Solved it over a course of a year • Food’s portfolio scaling up – Did it • Men’s grooming + Digital brands – They have 3 brands and they

aspire to own a total of 4-5 to play this theme.

Financials Front

• The company has been a consistent compounder. The company is a market leader in many products most notably Saffola Oil, Hair Oil, Oats, and a few more and is led by a capable and clean promoter.

• 11 Year CAGR – Revenue 11%, EBITDA 13%, Net Profit 16%, Stock Price 22%, RoE – 34%, Cash flow from ops – 24%

• Promoter holding constant at 59.61% in the last 3 years

• No Equity Dilutions, No debt

Management Front

• Management has been constantly guiding for 8-10% volume growths in India in the past 7 years and meeting it more or less. Internationally they have been guiding for double-digit constant currency growth which again they have been achieving more or less.

• Interestingly, management is very upfront and transparent about their problems. Whenever they had a problem or they missed expectations or performed lower than peers, they told the same themselves and then aspired to beat the same which they did.

• The company is a professionally run company as Mr. Harsh Mariwala focuses on other entrepreneurial things that do not interfere with the workings of Marico.

• Mr. Saugata Gupta, current MD (since 2014) of Marico seems to be an intelligent fanatic. IIT IIM educational background with a 6-year stint as CEO of consumer product business in Marico itself before becoming the MD. Before that, he was at ICICI Prudential.

Valuations & Conclusion

All said and done, Marico is indeed a good company. It does check off on our all checklist boxes.

When we talk about valuations, the company is trading at massive valuations of 8.6x price to sales and 63x price to earnings!

Needless to say, these are steep valuations for a company that is expected to grow 8-10% every year! The company’s valuations currently are at it’s highest!

To Sum it up – The company has been an immense wealth creator led by a capable and clean promoter who has handed over the reins to professional management. The company’s products and geographies are doing well. However, the valuations definitely are something that has to be checked despite their growth avenues.

Now one would say that this is a great company, so you can buy and forget but if you buy at expensive valuations then this can happen –

Indian Examples-

HUL negative returns from 2000 to 2010 Gillette India negative returns from 2000 to 2014 Reliance Industries no returns from 2007 to 2017 Wipro negative returns from 2000 to 2019 Emami negative returns from 2015 to 2021

Time correct happens, buying great businesses at expensive valuations can be a trap. This phenomenon is akin to all the global stocks

Here we have some more examples – (Danone didn’t move for 30 years!)

About the Promoter Founder Harsh Mariwala

Harsh Mariwala was educated at Sydenham College in Mumbai, in South Mumbai. In 1971, he entered the family business. He opened the company’s consumer products market in 1975 and introduced the Parachute coconut oil and Saffola refined oil up as its two primary brands. The two companies have been able to develop themselves as industry leaders in their respective branches with innovations such as smaller plastic bottles, their replacement with metal tins, and their emphasis on advertisement, promotion, human capital, and delivery.

Harsh Mariwala is a member of a number of boards and memberships. Mariwala is linked to approximately 74 board members who work on 11 different organizations in 19 different sectors. Harsh Mariwala was also elected as the president of FICCI and served on the FMCGH Committee Chairman of FICCI in various capacities.

About the CEO Saugata Dasgupta

Saugata Gupta is an IIM-Bangalore and IIT-Kharagpur alumnus who started his career at Cadbury and was part of the team that began ICICI Prudential Life Insurance. Gupta left ICICI Prudential as chief marketing officer to join Marico as head of marketing in 2004. Thus, in less than a decade, Gupta has risen first to CEO in 2013 and then to MD in 2014.

Stories and Fun Facts –

How Marico came up with its iconic round bottle packaging?

Creative ways of Marketing

When Parachute lost market share due to pricing mistakes!

In Q2FY17, In mid-May, we had a view that input costs will harden from June, July. Since Parachute volumes were steady, we decided to take the pricing call of a 5% hike in line with our pricing model. However, post-Brexit which happened on June 22nd or whatever, the input cost actually went down by

5% and the unorganized competition followed suit and we had the new price stocks in the market. Further, we are extremely uncompetitive at that time and in addition to that demand in most of our large markets which is basically Karnataka, Rural Maharashtra and Rural AP were still low, because of the demand condition being sluggish in the rural markets. There was huge resistance from trade to pick up our stocks and we also suffered reduced offtake and market-share losses to locals and an unorganized market. In fact, our market-share losses were around 70 basis points this quarter. Fortunately for us, the copra prices have started increasing since mid-August and consequently, our volume growth is recovering.

Mariwala’s Family office company called Sharrp ventures

Mr. Harsh Mariwala isn’t just a successful entrepreneur and business owner. He is a successful private investor as well it seems!

He and his son Rishabh invest in unlisted companies through their family office Sharrp ventures They own a stake in the beer cafe, healthkart, securens, and Nykaa.

Honest Management

Click here to know more.

Livon Counterfeit issues

Src – Q1FY16 Concall

2 Things on which they will not compromise

Src – Q1FY17 Concall

Future Prediction about E-commerce

Src

– Q1FY18 Concall

Quality of reach > Quantity of Reach

Src – Q1FY20 Concall

Learning from others

Src – Q1FY17 Concall

Growing organization

Src – Q2FY16 Concall

Playing the Long game

Src – Q1FY16 Concall

Src – Q2FY17 Concall

Src – Q4FY17 Concall

Saffola Problems and Strategy

Src – Q2FY18 Concall

Src – Q2FY18 Concall

Src – Q2FY18 Concall

Src

– Q3FY18 Concall

Src – Q3FY19 Concall

Trade Investments versus consumer investments

Src – Q2FY20 Concall

On Acquisitions – nurture/Incubate rather than outright purchase

Src – Q3FY16 Concall

105 Cr Paras Impairment on the acquisition

Src – Q4FY18 Concall

Kaya Problem and then the Demerger

The year was 2003 when Marico was a cash-rich, debt-free company and Mr. Mariwala could afford to take risks. It was unconventional for an FMCG company to foray into retail services then as it was unrelated to its original line of business.

“As there was a lot of interest in retail during that time, we decided to try out niche retail in the area of dermatology as the cost of hiring a dermatologist

would be much cheaper in India. After some quick market research, we decided to set up a single incubation cell with a manager who would report to me directly and head a small, entrepreneurial team,’’ reminisces Mariwala, quite aware at that time that it was going to be a ‘long battle’ in the retail business.

With the help of his friend Asif Adil (former Diageo MD) and his New Jersey-based financial and advisory services company, Marico floated Kaya Skin Care Solutions with a 24% stake held by Adil (subsequently bought out). After a decade, the FMCG major hived off Kaya as a subsidiary and listed it as Marico Kaya Enterprises (MaKe) to give a fresh impetus to the ‘yet-to-be-profitable’ retail business.

The restructuring was done to consolidate its FMCG business by merging its consumer product and the international businesses while keeping its skincare business as an independent entity.

That’s it, Folks! Thanks for reading till the end! Stay tuned for more!

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