FMCG is the fourth largest sector in the Indian economy. The FMCG market in India is expected to grow at a compounded annual growth rate of 27.9% and is expected to reach US$104 billion by FY2021. Rising income and growing youth population have been the key growth drivers of the sector. Brand consciousness has also aided demand. There are three main segments in the sector-50% is accounted for by household and personal care, 31% by healthcare (includes over the counter products and ethicals) and the remaining 19% by food and beverages. Hair care is the leading segment, accounting for 23% of the personal care segment in terms of revenue. Rural India accounts for about 60% of the total FMCG market. As income levels are rising , there is also a clear uptrend in the share of non-food expenditure in rural India. Demand for quality goods and services has been going up in rural India, on the back of improved distribution channels of manufacturing and FMCG companies. The retail market in India is estimated to reach US$1.1 trillion by 2020 , with modern trade expected to grow at 20-25% per annum, which is likely to boost the revenues of FMCG companies. Growth of consumer goods retailed through the newer channel is now outpacing the growth of FMCG products in traditional trade. Tier II and Tier III towns are witnessing a faster growth in the modern trade segment. Factors such as comfort, convenience , rising trust factor, modern store experience , access to a wide variety of categories and brands under a single roof and compelling value for money deals are a racting consumers to the newer channel in a big way. All this will give high benefits to FMCG companies. Out all FMCG companies one is Marico ltd. Marico Ltd is one of India’s leading consumer product companies operating in the beauty and wellness space. It was incorporated in 1988 by Mr Harsh Mariwala who is current chairman of the company. Currently company is present in 25 countries across emerging markets of Asia and Africa. Marico has nurtured multiple brands in the categories of hair care, skin care, edible oils, health foods, male grooming, and fabric care. Marico’s India business market household brands such as parachute, parachute advanced, saffola, hair & care, nihar , nihar naturals, livon, set wet, mediker and revive among others that add value to the life of 1 in every 3 Indians. The international business offers unique brands such as parachute, HairCode, Fiancee, Caivil, Hercules, Black chic, Isoplus, Code 10, Ingwe, X-Men and Thuan Phat that are localized to fulfill the lifestyle needs of company’s international consumers. Company has 8 factories in India located at Pondicherry, Perundurai, Kanjikode, Jalgaon, Paldhi, Dehradun, Baddi, and Paonta Sahib. In Bangladesh , Marico operates through Marico Bangladesh Limited, a wholly owned subsidiary. Its manufacturing facility is located at Shirichala, in Dhaka division. In company’s Indian business coconut oil has market share of 44%, saffola : super premium refined edible oils and healthy foods has market share of 20% , leave in hair nourishment has market share of 27%, value added hair oils has market share of 26% , leave in serums has market share of 1%, male grooming has market share of 3 %. Parachute is the world’s largest coconut oil brand. Marico’s coconut oil portfolio improved its volume market share by 59% , up 90 bps on a moving annual total basis. Parachute market share in rural India is lower than that in urban india, the expected consumption revival in the rural regions presents the company with an opportunity to improve its rural market share in the medium term. 1 out of every 10 coconuts grown in India are used by Marico. Saffola oil , brand gained a market share of 324 bps and further strengthened its leadership position in the superior premium refined edible oil segment to 69% . Saffola foray into healthy foods, saffola oats, contunes to consolidate its strong second position in the oats category with a value market share of 28%. Saffola oats is the highest distributed oats brand in the country. Saffola masala oats maintained its momentum, on the back of focused inputs and renewed promotional campaign ,which led to a consolidation in its value share to 70% in flavoured oats category. Company also added all new meal replacement product, the saffola active slimming nutria shake. Company further extended saffolas footfrint in the space of weight management and fitness with the launch of a range of saffola active soups . The initial response to saffola active slimming nutria shake and saffola active soups has been encouraging. The company’s value added hair oils portfolio has grown at ten year CAGR of 19% . Within the hairfall control segment , parachute advanced ayurvedic oil enjoys large demand from southern states of Andhra Pradesh , Karnataka, kerela, tamil nadu and telangana and continues to hold 30% market share in the region. The leave in serum portfolio of Livon and hair & care silk and shine grew by 13% in value terms. Company’s male grooming portfolio witnessed a healthy growth of 21%. Out of Company’s international business Bangladesh contributes 45% , south east asia contributes 26%, middle east and north America contributes 14% , south Africa contributes 9 %. Marico’s distribution width and penetration is acknowledged as one of the best in the industry. Every month ,46 million consumer packs are sold to about 1.8 million household through 1.7 million retail outlets spread across country. Marico’s network covers almost every Indian town with a population of over 20,000. The chart below depicts marico’s distribution network in urban and rural market.
Marico’s parallel rural sales and distribution network ranks among the top three in the industry and contributes 24% to the company’s topline. In rural area company’s infrastructure compromises more than 115 super distributors, catering to 2600 small stockiest and 9000 van markets. A dedicated team of territory sales executives and pilot sales representatives distribute marico’s as well as alliance brand through this vibrant network. The company has made a significant movement in creating the infrastructure for a direct to home operation in select cities. Marico has a wide product range in a competitive market and hence has a diverse price range. Marico therefore follows a competitive pricing strategy to maintain its leadership in its leading brands like parachute and saffola. The capital expenditure of company was 128 crores in FY2018. The capital expenditure in FY2019 is likely to be around 125-150 crore. Company expects its premium brands business to double in 3-4 years. Company’s total income from operation grew to Rs 5170.41 crores in FY2018 from 847.58 in FY2004. Company’s net profit grew to Rs 718.23 crores in FY2018 from Rs 58 crores in FY2004. Company has 16% topline CAGR and 24% bottomline CAGR since its inception . company’s total debt is Rs 122.38 crore. Marico’s return on capital employed was 41.3% in 2018. All these shows company is good in both fundamentals and financials. So I prefer buy call on Marico ltd.