| Marico Limited | ||||||
| Ratings Reaffirmed ; CP withdrawn | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA+/Positive/CRISIL A1+' ratings on the bank facilities of Marico Limited (Marico) and subsequently withdrawn the ratings on the commercial paper programme at the company's request. The withdrawal is in line with CRISIL's policy on withdrawal of bank loan ratings |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Marico and all its direct and wholly owned subsidiaries, collectively referred to herein as Marico, as they are all involved in a similar business. CRISIL has also amortised the goodwill on overseas acquisitions (for International Consumer Products Corporation, Vietnam; Rs 221 crore starting from fiscal 2011 and Rs 236 crore from fiscal 2015) over a period of five fiscals. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strong market position with healthy operating efficiency The company has a leading position in the branded coconut oil market in India. It's Parachute and Nihar brands make it the market leader in the Indian branded coconut oil market, with an overall volume market share of around 59% (for quarter ending March 31,2018). Also, as a result of a strong brand portfolio that comprises Parachute Advanced, Hair & Care, and Nihar Naturals, Marico is the largest player in the value-added hair oils segment as well, with a volume market share of 34%. In the premium refined edible oil segment, Marico enjoys strong brand equity with Saffola. Marico has been able to maintain the market leadership of its Saffola brand in the super premium refined edible oil segment, with a market share of 69%. In addition, it has also ventured into the healthy foods category (under the Saffola brand) and maintains a strong market position in the oats (breakfast cereal) segment with 28% market share and market leadership in masala oats (with 70% market share). There have been market share gains across product categories such as coconut oil, value added hair oils, male grooming, during the year to fiscal 2018. The company has also established itself in international markets, as indicated by its presence in: the coconut oil and hair-care segments in Bangladesh, the hair-care segment in the Middle East and North Africa, the male grooming segment in South-East Asia, and the ethnic hair-care and healthcare segments in South Africa. Ramp up of new product categories such as food, recovery in growth for the edible oil portfolio and growth in certain geographies of international business will remain key monitorable in the near term. Operating efficiency is sound supported by healthy return on capital employed (RoCE) of around 50%(for fiscal2017) and a strong network of 32 clearing and forwarding agents and about 5600 stockiest and distributors, providing a retail reach of about 47 lakh outlets in India and direct reach of 9 lakh outlets. The company also benefits from its cost effective and well-established sourcing strategy for its raw materials, primarily copra. * Robust financial risk profile: The company's solid financial risk profile is driven by healthy cash generating capability, and prudent working capital management. Also, capital expenditure (capex) plans have not been aggressive, though there were sizeable acquisitions in the past. Consequently, key credit metrics are comfortable. No sizeable capex is expected over the medium term. Liquidity is also strong, as reflected in minimal utilization of the working capital bank limit and a liquid surplus of over Rs 649 crore as on March 31, 2018. The company is expected to continue with acquisitions as it pursues growth. However, due to strong liquidity, moderate-sized acquisitions can be accommodated without material impact on key credit metrics. Any sizeable debt funded acquisition, will remain a key monitorable. Weaknesses * High, though reducing, dependence on coconut oil and edible oil categories Dependence on core categories, coconut oil and edible oils, leaves growth vulnerable to any change in customer beliefs or habits, impacting demand. The company has relied on new products and brand extensions to reduce dependence on Parachute and Saffola. It has also relied on acquisitions of brands such as SetWet, Zatak, and Livon to diversify into new segments and brand extensions such as Nihar Shanti Sarson Kesh Tel, Parachute Advansed Aloe Oil, Parachute Advansed Ayurvedic Oil, and Livon Hair Gain Tonic for Women. The company has acquired 45% stake in Beardo of Zed Lifestyle (men's grooming salon brand) and strategic investment of 22.5% in Revofit (health and wellness platform) to increase its penetration in the adjacent segments. The benefits of these acquisitions or new launches will accrue over time and will help gradually reduce dependency on core categories. The company will, therefore, remain exposed to the risk of concentration of revenue in its leading brands over the medium term. These risk are partially mitigated by the strong market position of the company in these segments and expected increase in market shares following the GST implementation. Although the contribution of coconut oil and edible oil portfolio remains high at 57.6% in fiscal 2017, CRISIL expects the same to gradually reduce going forward, on the back of higher focus on other product categories. * Susceptibility of operating margin to competition and raw material price volatility The cost of key raw materials copra, safflower, rice bran and liquid paraffin and polymers accounts for more than 50% of sales. Their prices depend on geo-climatic conditions, international prices, and the domestic demand-supply situation. Hence, the operating margin is partially susceptible to fluctuations in raw material prices. Despite significant variation in these prices over the past three fiscals, operating profitability was sustained at 18-19% supported by a market leadership. A focus on cost efficiencies and its continued price leadership should help mitigate the impact of volatility in raw material prices on the margins. |
| Outlook: Positive |
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CRISIL believes the operating performance will remain strong over the medium term. CRISIL also believes that the company is not likely to undertake any major debt-funded Capex programme over this period. |
| About the Company |
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Marico, incorporated in 1988, is a prominent manufacturer of coconut oil, hair oils, and premium refined edible oils in consumer packs in India. The company also has a presence in the hair-care, healthcare, and male grooming segments in Bangladesh, the Middle East, North Africa, South-east Asia, and South Africa. Currently, the promoter group owns about 59% stake in Marico. |
| Key Financial Indicators - CRISIL Adjusted financials | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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