| Marico Limited | ||||||
| Rated amount enhanced | ||||||
| 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 AAA/Stable/CRISIL A1+' ratings on the bank facilities of Marico Limited (Marico). |
| 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 the same 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: * Leading position across product categories and improving product diversity 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 62% (for year ending March 31, 2020). 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 76%. The market share remained intact across product categories such as coconut oil, value-added hair oils, super premium refined edible oil in consumer packs and male grooming during fiscal 2020. The company has 100% stake (up from 45% stake as on March 2020) in Beardo of Zed Lifestyle (men's grooming salon brand). Remaining 55% stake was acquired on June 30, 2020. Marico also has 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 thus gradually reduce dependency on core categories. Contribution of coconut oil and refined edible oil portfolio in the India business reduced to 64% in fiscal 2020 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 should remain 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. * Healthy operating efficiency Return on capital employed was a robust 55% in fiscal 2020, with a strong network of 25 clearing and forwarding agents and about 7,000 stockist and distributors providing a retail reach of over 50 lakh outlets in India and direct reach of over nine 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 also benefits from its cost-effective and well-established sourcing strategy for raw materials, primarily copra. Operating margin was healthy in fiscal 2020 due to disinflationary raw material prices; the margin could sustain in fiscal 2021 due to benign raw material prices and cost management practices. * Healthy financial risk profile 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.600 crore as on March 2020. 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: * Exposure to intense competition in the fast moving consumer goods (FMCG) industry 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. * Susceptibility of profitability to fluctuations in raw material prices 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 |
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Marico has robust liquidity, supported by cash surpluses of ~ Rs 600 crore as on March 31, 2020, 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 |
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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 |
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Downward scenarios * Significant erosion in Marico's market share by 10% in key product segments, and decline in operating margin to below 15% * Any large, debt-funded capex/acquisition |
| About the Company |
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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. |
| 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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||
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| 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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