| Marico Limited | ||||||
| Ratings reaffirmed at 'CRISIL AAA / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of Marico Ltd (Marico).
The ratings continue to reflect Marico’s leading position across product categories, improving revenue diversity, healthy operating efficiency, and a robust financial risk profile. These strengths are partially offset by the susceptibility of the operating margin to competition and to volatility in raw material price.
Revenue growth for Marico in fiscal 2022 is likely to be supported by recovery in urban demand, sustained performance across its core portfolios of Parachute Coconut Oil, Saffola Edible Oils, Value Added Hair Oils and Saffola Oats, recovery in international markets, better distribution strategy and launches in the Foods category. Despite supply chain related disruption in early fiscal 2021, the company reported healthy growth of 10%, supported by strong growth in Saffola Edible Oils, Foods and Parachute Coconut Oil segments and price hikes in the key portfolios to counter the steep input cost inflation during the year. Operating margin is expected to sustain in the range of 19-21% supported by cost control measures, calibrated price hikes to offset the commodity inflation, while continuing to actively invest in brand building across the core and new franchises.
Financial risk profile has been healthy, with cash surpluses of over Rs 1300 crore, gearing of 0.14 times and largely unutilised working capital lines. The company is expected to have minimal debt of ~150 crore which is majorly short term debt to fund its working capital requirements. Company’s surplus cash may partly be used to enhance in-house capacities and support new product and category launches, besides possible mid-sized acquisitions. |
Analytical Approach For arriving at its ratings, CRISIL Ratings 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 the same business. CRISIL Ratings 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.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths
The company has a leading position in the branded coconut oil market in India. Its brands, Parachute, Nihar Naturals and Oil of Malabar are well reputed, with an overall volume market share of around 61% (for year ending March 31, 2021).
Marico has been able to maintain the market leadership of its Saffola brand in the super premium refined edible oil in consumer packs segment, with a market share of 81%as on March 31, 2021. The market share continued to rise across key product categories such as coconut oil, value-added hair oils and super premium refined edible oil in consumer packs during fiscal 2021.
The Company has 100% stake (up from 45% stake as on March 2020) in Beardo of Zed Lifestyle (men's grooming salon brand). The Company plans to build a digital portfolio of at least three Rs. 100 crore plus brands by fiscal 2025 and has announced strategic investment in the brand Just Herbs in line with its expansion strategy. The benefits of these acquisitions or new launches will accrue over time and thus gradually reduce dependency on core categories. Contribution of coconut oil and refined edible oil portfolio in the India business reduced to 62% in fiscal 2021 from 72% in fiscal 2012 and may further drop going forward due to higher focus on other product categories.
Despite the impact of the pandemic, sales from overseas operations has remained intact owing to established market position, as indicated by the company’s 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 and ethnic foods segment in South-East Asia, and the ethnic hair-care and healthcare segments in South Africa. Healthy growth in key markets such as Bangladesh helped sustain the share of international business to total revenue at 22-23% over the last three fiscals, despite headwinds in other markets.
Return on capital employed was a robust 55% in fiscal 2021, with a strong network of 25 clearing and forwarding agents and about 7,300 stockist and distributors providing a retail reach of about 53 lakh outlets in India and direct reach of nearly 10 lakh outlets. Expected increase in rural reach and focus on direct reach and modern trade (including ecommerce) will help sustain healthy volume growth in the future. The Company has maintained profitability despite volatility in raw material prices driven by controlled costs, pan India distribution network and strong pricing power.
The financial risk profile should continue to be supported by strong cash-generating ability, and low debt, translating into robust credit metrics. Efficient working capital management and moderate capex intensity, has allowed the company to make few acquisitions without denting its credit metrics, and also shore up its liquidity robust levels to ~Rs.1490 crore as on March 2021.
While focusing on organic growth, the company will remain opportunistic with respect to 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
Intense competition has reduced the ability of players to pass on any increase in raw material prices. While Marico has fairly been able to maintain its position and pricing in the industry, competitive intensity will continue to be high with new product launches from other large players, especially in the premium segment.
The cost of key raw materials, copra, safflower, rice bran and liquid paraffin and polymers, account 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 margin was sustained at 18-20%, supported by the market leadership in major segments. A focus on cost efficiencies and its continued price leadership should help mitigate the impact of volatility in raw material prices on profitability. |
Liquidity: Superior Marico has robust liquidity, supported by cash surpluses of over 1200 crore as on March 31, 2021, and minimally utilised bank limit. Further, cash generation is healthy at over Rs 200-400 crore annually. Cash equivalents are largely invested in debt mutual funds and bank deposits. |
Outlook: Stable Marico’s business risk profile should continue to be strong, supported by its established market position in various product categories. Financial risk profile is also likely to remain healthy, aided by strong cash accrual and a comfortable capital structure. |
Rating Sensitivity factors Downward factors
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About the Company Marico, incorporated in 1988, is a prominent FMCG company, with diverse product portfolio including coconut oil, hair oils, premium refined edible oils in consumer packs, premium hair care, healthy foods and male grooming in India. The company also has 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, Mr. Mariwala and his family members, owns about 60% stake in Marico.
For the Q1 of fiscal 2022, Marico reported Rs 2525 crore in revenue (Rs 1925 crore in Q1 of fiscal 2021) and recurring PAT of Rs 356 crore (Rs 331 crore for Q1 of fiscal 2021). |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
* Working capital demand loan |
Annexure – List of entities consolidated
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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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Criteria Details
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