Event Update | FMCG

January 7, 2013

Marico
Marico announces restructuring plan
The Board of Directors of Marico has approved the restructuring of businesses, corporate entities and the organization involving a) the demerger of Kaya Skin Care Solutions (Kaya) into a separate company by the name Marico Kaya Enterprises Ltd (MaKE) and b) formation of an unified FMCG business with operations in India and abroad, headed by a single CEO. The restructuring plan would be effective from April 1, 2013. Kaya to be demerged into a separate listed company: As per the proposed demerger plan for Kaya, MaKE will become the holding company of Kaya Ltd (India) and Kaya entities in the Middle East and South East. Currently the promoters of Marico have a 60% stake in the company (Marico); post demerger the shareholding structure of MaKE will be identical to Maricos current shareholding structure. Shareholders of Marico will be allotted one share of MaKE for every 50 shares held in Marico. Marico will not hold any stake in MaKe post demerger. The equity shares of MaKE will be listed after all the statutory approvals are obtained. Formation of a unified FMCG business: Marico currently has three business verticals namely a) Indian consumer products b) the international FMCG business and c) Kaya with operations in India and abroad. Post the restructuring, Kaya would operate as a separate listed entity (MaKE). The Indian and International FMCG businesses, which were till date headed by two different CEOs, will be unified and headed by a single CEO. Outlook and Valuation: Kaya has been a loss making venture for Marico and during FY2012 Kaya made a loss of `29cr at the PBIT level on net sales of `279cr (a loss of `33cr in FY2011). The demerger of the loss making venture would result in Marico turning into a pure FMCG play enjoying superior return ratios. At the current market price, Marico is fairly priced, trading at 28x FY2014E earnings. We maintain a Neutral on Marico.

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 14,664 429 0.5 250/146 59,132 1 19,691 5,988 MRCO.BO MRCO@IN

`227 -

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex MRCO 3m 4.0 11.9 1yr 24.2 50.9 59.8 3.3 30.1 6.8 3yr 11.8 125.2

Key Financials (Consolidated incl. Kaya)

Y/E March Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011
3,135 17.8 238 -1.6 13.3 3.9 58.9 15.3 36.5 24.9 4.8 36.4

FY2012
4,008 27.9 319 34.4 12.1 5.2 43.8 12.2 30.8 23.0 3.8 31.5

FY2013E
4,840 20.7 415 29.9 13.6 6.4 35.4 7.3 26.3 23.7 3.1 23.0

FY2014E
5,643 16.6 523 26.3 13.6 8.1 28.0 5.9 23.3 22.4 2.7 19.3

V Srinivasan
022-39357800 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Marico | Event Update

Restructuring plan
The restructuring plan has three aspects viz a) corporate restructuring involving the demerger of Kaya business and the creation of MaKE, which would be listed subsequently b) business restructuring resulting in the formation of a unified FMCG business headed by a single CEO c) organization restructuring involving assignment of new roles.

Kaya to be demerged and made a separate listed company

As per the proposed Kaya demerger plan, MaKE will become the holding company of Kaya Ltd (India) and Kaya entities in the Middle East and South East. Currently the promoters of Marico have a 60% stake in the company (Marico); post demerger the shareholding structure of MaKE will be identical to Maricos current shareholding structure. Shareholders of Marico will be allotted one share of MaKE for every 50 shares held in Marico. The equity shares of MaKE will be listed on both, BSE and NSE, after all the statutory approvals are obtained. Maricos current exposure to Kaya stands at `180cr, with equity investment of `73cr and interest free loan of `107cr. Marico intends to convert the loan into equity prior to the demerger. Further, ownership of Kaya Middle East FZE (part of Kaya group), currently held by Marico Middle FZE (part of FMCG group) would be transferred to MaKE or one of its subsidiaries. However, details pertaining to the current exposure of Marico with regard to other Kaya entities are unavailable. Exhibit 1: Earrnings Estimates
` cr Sales EBITDA OPM (%) PAT FY2013E Incl. Kaya 4,840 656 13.6 422 FY2014E Excl. Kaya 4,840 656 13.6 422 Chg (%) FY2013E Incl. Kaya 5,643 765 13.6 523 FY2014E Excl. Kaya 5,295 800 15.1 547 (6.2) 4.6 150bp 4.6 Chg (%)

Source: Company, Angel Research

Formation of a unified FMCG business

Marico currently has three business verticals namely a) Indian Consumer products b) the international FMCG business and c) Kaya with operations in India and abroad. Post the restructuring, Kaya would operate as a separate listed entity (MaKE). The Indian and international FMCG businesses which were till date headed by two different CEOs would be unified and headed by a single CEO. As per the management, post the acquisition of youth brands including Set Wet, Zatak and Livon, the business portfolios of the Indian consumer business and IBG businesses have been increasingly mirroring as each has resulted in the formation of a unified FMCG business.

Appointment of new business heads

As per the organizational restructuring plans announced, Saugata Gupta who currently heads the domestic consumer business will head the overall FMCG business. Vijay Subramaniam the current head of the International FMCG business group will head Kaya. Ajay Pahwa, the current CEO of Kaya has decided to leave the organization and pursue an opportunity outside Marico.
January 7, 2013

Marico | Event Update

Profit and loss statement (Consolidated incl. Kaya)

Y/E March (` cr) Net Sales Total operating income % chg Total Expenditure Cost of Materials Advertising Exp Personnel Others EBITDA % chg (% of Net Sales) Dep.& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra Exp/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earn. of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers.

FY09 2,388 2,388 25.4 2,084 1,278 243 166 398 304 23.4 12.7 36 268 24.5 11.2 36 12 5.0 0 245 28.8 15 230 41 16.7 189 (0) 189 204 32.3 8.5 3.3 3.3 32.3

FY10 2,661 2,661 11.4 2,286 1,262 351 193 480 375 23.4 14.1 60 315 17.5 11.8 26 18 5.9 0 308 25.7 10 298 64 20.9 234 2 232 241 18.5 9.1 4.0 3.9 18.5

FY11 3,126 3,127 17.5 2,719 1,618 346 230 524 407 8.6 13.0 71 337 6.8 10.8 41 30 9.2 0 326 5.8 (49) 375 85 26.1 290 5 285 236 (2.4) 7.5 3.9 3.9 (1.6)

FY12 4,008 4,008 28.2 3,524 2,099 449 307 669 485 19.0 12.1 73 412 22.4 10.3 42 33 8.1 0 402 23.5 2 401 78 19.4 322 5 317 319 35.4 8.0 5.2 5.2 34.4

FY13E 4,840 4,840 20.7 4,184 2,480 542 348 813 656 35.4 13.6 100 556 34.9 11.5 55 46 8.3 0 547 35.9 0 547 125 22.8 422 8 415 415 29.9 8.6 6.4 6.4 23.9

FY14E 5,643 5,643 16.6 4,878 2,880 632 412 954 765 16.6 13.6 101 665 19.5 11.8 38 60 8.7 0 686 25.4 0 686 155 22.6 531 8 523 523 26.3 9.3 8.1 8.1 26.3

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

January 7, 2013

Marico | Event Update

Balance Sheet (Consolidated incl. Kaya )

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Long term Provisions Other long term liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and advances Deferred Tax Asset Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers.

FY09 61 393 454 0 374

FY10 61 593 654 13 446

FY11 61 854 915 21 722 45 1

FY12 61 1,082 1,143 25 762 42 1 1,973 706 403 303 40 554 296 123 22 1,278 159 218 902 644 634 1,973

FY13E 64 1,944 2,009 25 722 42 1 2,798 1,446 468 978 87 559 146 123 13 1,640 273 276 1,091 748 891 2,798

FY14E 64 2,419 2,483 25 682 42 1 3,231 1,446 569 877 87 564 346 123 2 2,099 556 236 1,308 867 1,232 3,231

828 414 203 210 58 128 12 64 670 90 130 450 314 355 828

1,112 468 242 226 113 146 83 62 897 111 190 596 414 483 1,112

1,704 618 337 281 33 541 89 99 30 1,160 221 161 779 529 632 1,704

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

January 7, 2013

Marico | Event Update

Cash flow Statement (Consolidated incl. Kaya)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers.

FY09 230 36 (75) 30 41 2 182 (95) (12) (107) 0 16 47 30 (60) 15 75 90

FY10 298 60 (135) 15 64 39 212 (149) (71) (219) 18 72 47 15 28 21 90 111

FY11 376 71 (82) 23 85 45 348 (465) (9) (474) 29 277 47 23 235 110 111 221

FY12 401 73 (45) 25 78 (73) 301 (108) (226) (335) 3 40 47 25 (29) (62) 221 159

FY13E 547 100 (151) 15 125 (25) 360 (792) 150 (642) 500 (41) 50 15 395 113 159 273

FY14E 686 101 (62) (15) 155 7 561 (5) (200) (205) 0 (40) 49 (15) (74) 283 273 556

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

January 7, 2013

Marico | Event Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Net working capital (days)
previous year numbers.

FY09 68.6 57.8 30.5 0.3 6.3 49.2 18.1 3.3 3.3 3.9 0.7 7.4 35.7 49.6 53.0 4.9 52 17 42 41

FY10 57.9 46.0 21.2 0.3 5.7 40.0 13.5 4.0 3.9 4.9 0.7 10.7 32.5 43.0 43.6 4.6 61 21 46 51

FY11 58.9 39.1 15.3 0.3 4.8 36.4 9.1 3.9 3.9 5.8 0.7 14.9 24.9 39.4 36.5 3.5 70 21 53 43

FY12 43.8 35.9 12.2 0.3 3.8 31.5 7.9 5.2 5.2 6.3 0.7 18.6 23.0 39.0 30.8 3.3 66 17 52 39

FY13E 35.4 28.5 7.3 0.3 3.1 23.0 5.5 6.4 6.4 8.0 0.7 31.2 23.7 35.4 26.3 3.5 64 18 50 43

FY14E 28.0 23.5 5.9 0.3 2.7 19.3 4.6 8.1 8.1 9.7 0.7 38.5 22.4 33.3 23.3 3.5 66 18 51 41

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

January 7, 2013

Marico | Event Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Marico No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

January 7, 2013

Marico | Event Update

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, Power, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP /

January 7, 2013