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Keynote capitals stock ideas
1. K E Y N O T E
Keynote Capitals Research – September 20, 2011
Stock Ideas
Stocks Covered Page No.
Bharti Airtel Ltd. 1
DB Corp Ltd. 3
Dr Reddy’s Ltd. 5
Hero Moto Corp Ltd. 7
Marico Ltd. 9
Keynote Capitals Research
Keynote Capitals Institutional Research –awarded “India’s Best IPO Analyst 2009” by MCX‐ Zee Business
2. K E Y N O T E
Bhart Airtel ltd
ti d.
Bharti Airtel Ltd. is on of the wo
ne orld’s leading providers of telecommunication servic ces
Key S
Stock Data
sence in 19 co
with pres ountries including India an countries fr
nd rom South As sian and Africcan
Sector Telecom region. The Company served an ag ggregate of 2220.9mn custo omers and its net sales sto ood
CMP `386.95 `59467.220Cr for FY11. The Comp pany is the la argest wireless service pr rovider in Ind
dia,
52wk H
High/Low `444/304 based on the number of customers as on 31st M
n s March, 2011. It offers an int tegrated suite of
e
Market Cap
t `146944Cr telecom ssolutions to its customers, in addition to providing lon distance c
s o ng connectivity booth
($3265Cr) nationally and internat
y tionally. The Company als offers DTH (Direct-to-H
so H Home) and IPTV
6m Avg daily vol
g. 542193 services. All these services are rendered under a unified br rand “Airtel” e
either directly or
y
BSE Se
ensex 16745.35 through ssubsidiary commpanies.
Stock Codes
k
Recen
ntly, the com
mpany awarde license to operate 2G and 3G mo
ed obile services in
s
Reco ‘Buy’ Rwand Rwanda is amongst the fastest grow
da. wing telecom markets in A
Africa.
Reuter Code
rs BRTI.BO
B
BSE Code 532454
5 The c company hinte that mobile tariffs may increase further due to rising operating
ed y
NSE C
Code BHARTIARTL
B L cost. T company has already hiked its pr
The y y re-paid on ne tariff rates in six circles by
et
Face V
Value `5
` 20% from 1.0 paise per second to 1.2 paise per second in July, 2011. We believe th
e n hat
vent could lea to improvin ARPM and margin expa
this ev ad ng d ansion going fforward.
Share eholding patt
tern 3G se ervices could be a growth driver for the company. Bharti Airtel h had bagged 3G
(30th J
June, 2011) spectrrums in 13 out of the 22 telecom circles through a auction he last year, for
an eld
Other `12,2995Cr. The company has a already launch 3G servic in many c
hed ces cities. The initial
DII s respon has been overwhelmin and Airtel has emerged as the mark leader with 3
nse n ng d ket h
8% 6%
million 3G customers out of th total 9 mil
n he llion users of this service The compa
f e. any
FII plans to offer serv
vices like vide calls, live streaming of video, high speed intern
eo f net,
%
18% mobile TV, etc.
e
Prom
oters Key Financials
68% (` C
Cr)
Particulaars FY077 FY088 FY009 FY10 FY
Y11
Total Sales 18535.23
3 27035.26
6 37334.1
12 41781.58 59433.00
YoY Grow %
wth 46.16%
% 38.28
8% 11.99
9% 42.17%
Price Performance (%)
)
Total Exppenditure 11271.22
2 16004.03
3 22361.4
44 25312.21 39501.50
1 Mth 3 Mths 6 Mths 1 Yr EBITDA 7264.01
1 11031.23
3 14972.6
68 16469.37 19931.50
-0.6% 3.0% 3.2% 8.7%
23 YoY Grow %
wth 51.86%
% 35.73
3% 10.00
0% 21.02
2%
Depreciat tion 2448.66
6 3471.41
1 4672.7
77 6199.41 10206.60
Stock Price Perfo
k ormance EBIT 4815.35
5 7559.82
2 10299.9
91 10269.96 9724.90
Bharti airtel ltd
B Bse sensex Other incoome 173.03
3 360.03
3 597.4
48 1270.87 488.20
120 Interest 309.99
9 608.29
9 2306.3
38 645.40 2534.90
PBT 4678.39
9 7311.56
6 8591.0
01 10895.43 7678.20
110 Tax 568.05
5 816.15
5 546.8
83 1533.91 1779.00
100 PAT 4110.34
4 6495.41
1 8044.1
18 9361.52 5899.20
YoY Grow %
wth 58.03%
% 23.84
4% 16.38
8% -36.98
8%
90
EPS (`) 10.82
2 17.10
0 21.1
18 24.65 15.53
80 EBITDA M Margin 39.30%
% 40.84%
% 40.09
9% 39.37
7% 33.52
2%
PAT Marg gin 22.24%
% 24.05%
% 21.54
4% 22.38
8% 9.92
2%
PE (x) 35.61
1 24.51
1 15.2
24 13.00 24.00
(Source - Keynote Capita Ltd.)
als
1 Keyn
note Capitals Research
s
3. K E Y N O T E
The company has fast growing customer base. It has crossed the significant milestone
of 200 million customers for all territories during the quarter ended December, 2010.
As on Q1FY12, the company had an aggregate of 230.8 million customers consisting
of 221.2 million Mobile, 3.3 million tele-media and 6.3 million DTH customers. Its total
customer base as on Q1FY12 increased by 25.9% compared to the customer base as
on Q1FY11.
Total customer base (in mn)
300.00
220.88 230.83
200.00
137.01
97.59
100.00
0.00
FY09 FY10 FY11 Q1FY12
Total customer base
The acquisition of Zain’s African business has given geographical diversification to the
company. It is targeting 100 million subscribers by the end of FY13 from this continent.
Currently, Airtel Africa has over 46 million customers, added 2.1 million new
customers across 16 countries of Africa after the acquisition. It plans to increase its
revenues to $5bn and EBITDA to $2bn by the end of the next financial year.
Valuation and Outlook
We have a positive outlook on Bharti Airtel and believe that the company with its
strong customer base growth and 3G spectrum in key circles is best placed to benefit
in the Telecom sector in the long-term. The company indicated that mobile tariffs may
go up further. This could be positive move from the company and will help sustain
margins going forward.
Peers comparison (FY11)
(` Cr)
Company Sales PAT EPS (`) ROCE (%) RONW (%)
Bharti Airtel 59433.00 5899.20 15.53 13.28 13.07
Idea Cellular 12397.88 953.94 2.89 8.32 7.43
Rel. Comm. 24908.98 1505.82 7.21 2.92 2.77
(Source - Keynote Capitals ltd.)
Bharti Airtel has a market capitalization of `146944Cr and is trading at a share price
of `386.95 per share. The consolidated TTM EPS is `15, translating into a TTM PE of
30x. The stock is an attractive buy considering the growth prospects of the industry as
well as the company.
Keynote Capitals Research 2
4. K E Y N O T E
DB Corp Ltd.
Key Stock Data DB Corp Ltd. (DBCL) is a leading print media company in India. Its newspapers and
magazines, published in four languages, have a strong readership base of around
Sector Print Media 18.1mn. DBCL currently has a presence in 13 state and many of these states enjoy
CMP `219.20
good economic growth prospects, because of which the company is a play on regional
52wk High/Low `307/216.4
growth in the Indian print sector. In terms of average readership per day, DBCL’s Hindi
Market Cap `4017Cr
newspaper, Dainik Bhaskar, is a market leader in the states of Madhya Pradesh,
($8.51bn)
Chandigarh, Chhattisgarh and Haryana. The company is also the leader in the urban
6m Avg. daily vol 92,337
areas of Gujarat, Rajasthan and Punjab.
BSE Sensex 16,745.35
DBCL also has a presence in the radio business, under the brand name, MY-FM.
Stock Codes Currently, it runs 17 FM radio stations at locations where its publications have an
established presence, which helps it in cross-sell advertising space to local companies.
Reco. ‘Buy’
Reuters Code DBCL.BO DBCL also operates Internet and Short Messaging Service (SMS) portals through its
BSE Code 533151 subsidiary, I Media Corp. Ltd. (IMCL). A division of DB Corp, DB Activation, is engaged
NSE Code DBCORP in organizing events such as road shows, mall activities, live entertainment shows, trade
Face Value `10 shows, conferences, trade meetings, exhibitions and shopping festivals.
DBCL entered the state of Jharkhand with the launch of the Dhanbad edition in
Shareholding pattern April 2011. Subsequently, it launched its second Marathi edition from Nashik in July
(30th June, 2011) 2011 and it plans to launch in other cities of Maharashtra including Jalgaon over
2011-12. The company is expected to complete its Bihar foray by FY13. The
FII company is looking to ramp up its internet business rapidly. Its page views have
5% also gone up from 8 million to over 100 million in the last 15 months.
Prom DII
4% DBCL had last hiked advertising rates by about 14% in April 2010, for all editions
oters
86% Othe (excluding Divya Bhaskar) across states. The ratio of colour and black & white
rs advertisements in DBCL’s publications stood at 70:30 in FY11. As the rates for
5% colour advertisements are twice that of black & white advertisements, the company
is expected to earn higher realisations and yields, going forward.
Price Performance (%) Key Financials (`Cr)
1 Mth 3 Mths 6 Mths 1 Yr FY07 FY08 FY09 FY10 FY11
-6.5% -5.9% -13.6% -16.6% Net Sales 663.32 839.01 920.57 1013.77 1247.33
YoY Growth (%) 25.7% 26.5% 9.7% 10.1% 23.0%
Stock Price Performance Total Expenditure 574.46 647.48 770.63 680.06 853.12
120 EBITDA 88.86 191.53 149.94 333.71 394.21
115 YoY Growth (%) 20.4% 115.5% -21.7% 122.6% 18.1%
110
105 Margin 13.4% 22.8% 16.3% 32.9% 31.6%
100 Interest 20.16 24.27 46.45 32.34 15.28
95
90
Depreciation 10.88 14.69 17.8 26.64 42.77
85 PBT 67.3 164.15 111.32 304.75 366.97
80 Tax 5.41 62.75 42.84 105.71 99.65
Oct-10
Sep-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
Jun-11
Jul-11
Aug-11
Nov-10
May-11
PAT 61.89 101.4 68.48 199.04 267.32
YoY Growth (%) 77.3% 63.8% -32.5% 190.7% 34.3%
DB Corp. BSE Sensex Margin (%) 9.3% 12.1% 7.4% 19.6% 21.4%
EPS (`) 289.21 6.01 4.06 10.97 14.59
(Source - Keynote Capitals ltd.)
3 Keynote Capitals Research
5. K E Y N O T E
Ind
dia’s total med expenditu as a perc
dia ure centage of GD stands at around 0.41%,
DP t
which is quite lo in compar
ow rison to 1.08% in the US, 0.9% in Japa and a global
% an,
aveerage of aro ound 0.8%. We believe that the adv vertising exp
penditure, as a
s
perrcentage of G
GDP, should increase on th back of str
he rong economic growth, rising
disposable incom growing c
me, consumerism and changin demograph
m ng hics.
Growth in quarterly English/Hindi ad-revenue
n E e Grow in Circul
wth lation revenu
ue
300 281 283 40.
.0% 58 57 6.0%
236 236
2 2
249
250 201 20 218 191
00 30.
.0% 56
200 54
4 54 54 4.0%
150 20.
.0% 54 53 53 53 53 53
100 2.0%
10.
.0% 52
50
0 0%
0.0 50 0.0%
(`Cr)
( (`Cr)
Adver
rtising revenue
e (LHS) oy growth (RHS)
yo Circulation
n revenue (LHS) yoy gro
owth (RHS)
Valua
ation and Outlook
DBCL’s expansion into new terr ritories, coupled with eco
onomic growt will drive
th
growth in advertising revenues, going forward. It has plann a capital expenditure
g . ned
of `90-100Cr for FY12E. As per th consensus estimates, D
he s DBCL is tradin at 15.31x
ng
FY12 EP of `14.33 and 13.02x FY13 EPS of `16.84. How
PS f wever, the company may
face com ssure in the new markets from the existing players.
mpetitive pres
Keyno Capitals R
ote Research 4
6. K E Y N O T E
Dr. Reddy’s Laboratories Ltd.
Dr.Reddy's Laboratories Ltd. (DRL) is an integrated global pharmaceutical company
Key Stock Data
having strong generic opportunities in the US, favourable positioning in Russia and
Sector Pharma expanding bio-similars portfolio are healthy indicators of the stock in the long run. DRL's
CMP `1512.15 acquisition of GSK's penicillin facility in the US opens up newer avenues for growth as it
52wk High/Low `1855/1387 has allowed the company an entry into the US penicillin-based anti-bacterial market
Market Cap `256.15bn segment (through brands such as Augmentin and Amoxil).
($5390.36mn)
6m Avg. daily vol 33251 DRL’s settlement with Pfizer is for resolving litigation related to Lipitor tablets of
BSE Sensex 16,745.35 strengths 10 milligram (mg), 20 mg, 40 mg, and 80 mg, known generically as
Atorvastatin calcium tablets.
Reco ‘Buy’
BSE Code 500124 Steady growth in its baseline revenue and upsides from periodically successful Para
NSE Code DRREDDY IV ‘first-to-file' launches in the US (either with 180-days exclusivity or as an
Face Value `5 authorised generic supplier to the innovator) buoy up the growth prospects for the
company. DRL filed 21 abbreviated new drug applications (ANDAs) in 2010-11,
taking the cumulative total to 179 ANDAs (including partnered ANDAs). The company
Shareholding pattern (30th
June, 2011) has 76 pending approvals, of which 36 are Para IV filings and 11 are in the ‘first to
file' category. The company also filed 56 drug master files (DMFs) in 2010-11, taking
Publi
its overall count to 486.
c &
othr
14% Dr. Reddy’s entered into an agreement with JB Chemicals & Pharmaceuticals to
Prom FIIs
acquire the latter’s prescription portfolio of 20 brands in the Russia and other CIS
oters 45%
regions for $34.85mn. The key ones are Metrogyl and Jocet. Prior to this, JB
26% Pharmaceuticals had sold its OTC business in Russia and CIS countries to Cilag
DIIs GmbH International, a wholly-owned subsidiary of Johnson & Johnson, for `938Cr.
15%
It recently received a final nod from the US FDA to launch the fondaparinux sodium
injection — a bioequivalent generic version of GSK's Arixtra that would also support
growth in the US. The approval opens up significant earnings potential for the
Price Performance (%)
company, considering that the Arixtra brand had US sales of approximately $340mn
1 Mth 3 Mths 6 Mths 1 Yr for the 12-months ended May 2011.
-0.53% -5.06% -4.53% 0.66%
Stock Price Performance Key Financials (`Cr)
140 Particulars FY07 FY08 FY09 FY10 FY11
130 Net Revenues 6513.88 4991.68 6900.63 7027.65 7469.28
120 EBITDA 1771.63 1042.66 -61.50 616.81 1677.53
110 Net Profit (Adj) 965.54 438.13 284.77 106.76 1104.00
100 Earnings Per Share 32.42 26.07 - 6.33 65.28
90 Price Earnings 12.79 23.26 - 67.38 28.64
80 EBIDTA Margin (%) 27.29% 21.14% -0.74% 15.31% 21.91%
PAT Margin (%) 14.82% 8.78% 4.13% 1.52% 14.78%
RONW (%) 23.96% 9.99% 15.09% 20.72% 20.84%
Dr.Reddy's Lab ROCE (%) 31.83% 10.30% 6.56% 15.61% 25.58%
BSE_SENSEX Sources: Keynote Capitals Ltd.
5 Keynote Capitals Research
7. K E Y N O T E
Revenue Break Up (`Cr)
Particulars Q1FY11 Q4FY11 Q1FY12 YOY (%) QOQ (%)
Global Generics 1192 1417 1442 21.0 1.8
North America 390 592 576 47.7 -2.7
Europe 194 201 192 -1.0 -4.4
India 278 275 296 5.7 7.0
Russia & Other CIS 255 268 302 18.3 12.6
Others 75 82 80 5.7 -2.6
PSAI 450 555 483 7.4 -13.0
North America 84 75 84 0.6 12.4
Europe 156 208 169 8.9 -18.8
India 63 71 66 4.6 -6.9
RoW 147 201 165 10.9 -18.5
Proprietary Products 42 45 53 27.2 16.6
Total 1683 2017 1978 17.5 -1.9
For the quarter ended June 2011, DRL's global generics business grew by over 21%
driven primarily by strong growth in North America (up by 47%), which was led by
launches of last year and market share increase across key products lansoprazole,
tacrolimus and omeprazole OTC, to name a few. With several new launches Allegra D24
and Olanzapine are expected this year, the US is likely to remain the revenue driver.
Russia & CIS which contributed 15% grew by 18% on back of significant volume growth in
key brands.
(`Cr)
Particulars Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Net Sales 1836.81 1729.64 1642.25 1683.13 1870.37 1898.51 2017.27 1978.32
Other Income 14.01 17.35 20.93 18.64 22.2 19.79 50.48 18.7
Total Income 1850.82 1746.99 1663.18 1701.77 1892.57 1918.3 2067.75 1997.02
Total Expenditure 1496.19 1377.27 2215.02 1341.62 1464.82 1518.41 1578.48 1594.71
PBIDT 354.63 369.72 -551.84 360.15 427.75 399.89 489.27 402.31
Less: Interest -20.85 5.03 2.53 17.74 3.49 4.98 -7.44 4.65
PBDT 375.48 364.69 -554.37 342.41 424.26 394.91 496.71 397.66
Less: Depreciation 98.7 964.08 -760.15 97.6 104.79 106.58 105.8 123.38
Tax 59.51 -77.69 44.06 35.73 32.65 15.19 56.74 11.94
Profit After Tax 217.27 -521.7 161.72 209.08 286.82 273.14 334.17 262.34
EPS (`) 12.88 - 9.86 12.41 16.95 16.14 19.76 15.52
PBIDTM (%) 19.31 21.38 -33.6 21.4 22.87 21.06 24.25 20.34
PBDTM (%) 20.44 21.08 -33.76 20.34 22.68 20.8 24.62 20.1
PATM (%) 11.83 -30.16 9.85 12.42 15.33 14.39 16.57 13.26
DRL’s consolidated net profit rose 25% to `262.34Cr on 18% increase in net sales to
`1978.32Cr in Q1 June 2011 over Q1 June 2010. Revenues from Global generic business
increased by 21% to `1442.40Cr for the quarter ended June 2011, contributing 70% to the
total sales.
Strong generic opportunities in the US, supported by its pipeline of product releases and
favorable positioning in Russia, the management expect DRL to show robust growth going
forward on the back of strong performance in the US, India and Russia business.
Keynote Capitals Research 6
8. K E Y N O T E
Hero Moto Corp Ltd.
Hero Moto Corp Ltd. (Formerly Hero Honda Motors Ltd.), the world's largest
Key Stock Data
manufacturer of two – wheelers, has 3 manufacturing units at Gurgaon, Dharuhera and
Sector Auto Haridwar with total capacity of 6.15mn. The company is pioneer in fuel efficient
CMP `2210.00 technology with introduction of 4-stroke motorcycles and became first to launch the fuel
52wk High/Low `2232/1378 injection technology in Indian motorcycles with the launch of Glamour FI in June 2006.
Market Cap `441.34bn The company has more than 5000 outlets comprising a mix of authorized dealerships,
($9594.3mn) service & spare parts outlets, and dealer-appointed outlets across the country. Hero Moto
6m Avg. daily vol 68161 Corp recently unveiled a new brand after the two-wheeler major ended its long standing
BSE Sensex 16745.35 partnership with Japan's Honda Motor.
Reco ‘Buy’ The company is targeting 6mn units in terms of volume and has already sold 2.46mn
BSE Code 500182 units in 5 month which around 41% of the target and is in-line with company’s
NSE Code HEROMOTOCO estimates.
Face Value `2
The company expects the margins to improve in Q2 & Q3 due to marginal softening
of the commodity prices and benefit of price hike taken in June 2011 despite incurring
Shareholding pattern (30th
June, 2011) the re-branding cost in Q2 and Q3 FY12. The company had hiked the vehicle prices
by `500-750 per vehicle in June 24th, 2011. It would incur re-branding cost of roughly
DIIs
`100Cr over and above advertising cost for the same. The tax rate would continue at
4.57% Public
9.56% 17% for the remaining quarters of FY12 as witnessed in Q1FY12.
Prom The company is expanding capacity from 6.15 million vehicles as on 31st March 2011
FIIs oters to 6.4 - 6.5 million vehicles by end of FY12 through various measures at existing
33.67 52.21 plants such as de bottlenecking, out sourcing parts, etc. The urban demand is driven
% % by premium motorcycles and scooters. The company is witnessing capacity
constraint for their premium bikes which would improve post capacity expansion.
The growth in rural market is faster than in urban market. Rural sales constitute 45%
Price Performance % of its sales volume now compared to 38% in 2008-09. Due to good monsoon, it is
expected to be strong.
1 Mth 3 Mths 6 Mths 1 Yr
16.8% 26.7% 45.1% 26.8% Key Financials (`Cr)
Stock Price Performance Particulars FY07 FY08 FY09 FY10 FY11
Net Revenues 9894.52 10335.24 12319.12 15758.18 19245.03
Hero Moto Nifty
130% Growth (%) - 4.45% 19.20% 27.92% 22.13%
EBITDA 1387.49 1572.6 1964.65 3025.3 2822.94
110% Growth (%) - 13.34% 24.93% 53.99% -6.69%
Net Profit 777.11 879.19 1180.63 2081.8 1842.11
90%
Growth (%) - 13.14% 34.29% 76.33% -11.51%
70%
EPS (`) 40.07 45.24 60.79 93.18 79.51
Price Earnings (x) 17.1 15.26 17.6 20.85 19.95
EBIDTA Margin (%) 14.02% 15.22% 15.95% 19.20% 14.67%
PAT Margin (%) 7.85% 8.51% 9.58% 13.21% 9.57%
RONW (%) 38.30% 35.48% 37.77% 61.43% 60.05%
ROCE (%) 51.66% 40.09% 50.99% 76.48% 60.68%
7 Keynote Capitals Research
9. K E Y N O T E
EBIDTA Margins to rise in coming quarters
Due to the significant rise in commodity price, margins were squeezed from 15% to 8.4%
which has now begun to rise due to softening of commodity price from last 2 quarter and is
expected to further come down in near future thereby improving company’s margins.
Consistently paying dividends
Since 1991, company is paying dividend which has increase from 20% to 5500%. Last
year company paid dividend of `105 per share. As company has enough cash which
would be utilize for capacity expansion. Therefore, the company is in position of giving
dividend in coming years.
Year End FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Dividend Paid (` Cr) 339 359 399 399 399 339 379 399 2197 2097
Dividend (%) 850 900 1000 1000 1000 850 950 1000 5500 5250
Div. Yield (%) 5.09 9.55 4.08 3.65 2.25 2.48 2.75 1.87 5.66 6.62
Higher ROE & ROCE as compared to its peers
The company has ROE of 60%, which indicates amount earned by the investor and ROCE
of 61%, which indicates the efficiency of the company in using its resources. Both have
increased to current levels from 38% and 52% levels in FY07, respectively.
(` Cr)
Particulars Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Net Sales 4040.1 3814.42 4092.61 4264.61 4511.29 5118.19 5350.94 5637.64
Other Income 68.71 54.95 69.49 53.42 78.35 62.03 74.34 88.41
Other Operating Income 29.5 25.01 29.71 32 40.66 43.47 39.99 45.69
Total Income 4138.31 3894.38 4191.81 4350.03 4630.3 5223.69 5465.27 5771.74
Total Expenditure 3325.43 3178.51 3410.58 3694.07 3944.01 4664.92 4561 4865.57
PBIDT 812.88 715.87 781.23 655.96 686.29 558.77 904.27 906.17
Less: Interest -6.1 -4.59 -4.47 -2.66 -2.07 -5.22 8.1 -3.19
PBDT 818.98 720.46 785.7 658.62 688.36 563.99 896.17 909.36
Less: Depreciation 50.34 46.89 48.66 48.28 60.75 55.96 237.39 239.79
Tax 171.5 137.8 138.23 118.65 122.01 79.03 157.17 111.68
Profit After Tax 597.14 535.77 598.81 491.69 505.6 429.00 501.61 557.89
EPS (`) 29.9 26.83 29.99 24.62 25.32 21.48 25.12 27.94
EPS TTM (`) 90.12 101.91 111.76 111.34 106.76 101.41 96.54 99.86
PBIDTM (%) 20.12 18.77 19.09 15.38 15.21 10.92 16.9 16.07
PBDTM (%) 20.27 18.89 19.2 15.44 15.26 11.02 16.75 16.13
PATM (%) 14.78 14.05 14.63 11.53 11.21 8.38 9.37 9.9
Valuations:
The management expects margins to improve considerably giving an opportunity for
further upside. At current market price, Hero Honda is trading at PE multiple of 19.8x of
Q1FY12 annualized earnings.
Keynote Capitals Research 8
10. K E Y N O T E
Marico Ltd.
Key Stock Data Marico is one of the leading Indian FMCG players in the beauty and wellness space
offering products and services in hair care, health care and skin care segments to
Sector FMCG
consumers in domestic and international markets. The company was incorporated in 1988,
CMP `140.70
under the name Marico Foods Ltd.
52wk High/Low `173 / 112
Market Cap `86.50bn Marico has a wide distribution network of over 3.3mn outlets in India and overseas. The
($1922.22mn) company is primarily based in India while international presence is flourishing. The
6m Avg. daily vol 83,506 company’s international markets include Middle East, SAARC countries, Egypt and South
BSE Sensex 16745.35 Africa.
Investment Rationale
Reco ‘Buy’ Marico’s edible oil segment branded under Saffola caters to a niche of health
BSE Code 531642 conscious people. It is a pricing and market leader in this segment. Fast growing
NSE Code MARICO Indian economy has seen a major transition in the lifestyle of people. Consciousness
Face Value `1 towards hygiene and health is rising and a reason for spurt in the health and wellness
markets. The company’s Saffola brand volume registered a CAGR of 15% while its
revenues reported a CAGR of 18% during FY05-10, which is likely to continue, going
Shareholding pattern (30th
June, 2011) forward. The brand is expected to report a CAGR of 15-17% in terms of volume
growth during FY11-14.
Marico’s Parachute brand has become a generic name in coconut oil segment in
Prom India. The company holds both pricing as well as volume leadership in this segment.
oters Presence of the unorganized market in villages was a major concern in this segment,
63% FII
26% which Marico is resolving through selling economy packs at affordable prices leading
to an increase in volume growth. The company also caters fast growing value added
Other light hair oil segment in the hair oil category.
s DII Marico’s international business contributes ~23% to total revenue and grew at a
7% 4% CAGR of 36% over past 4 years. Going forward, the segment is expected to grow at a
CAGR of 20% during FY11-14.
Price Performance %
There are few triggers for the company’s stock price, going forward. These include,
• Robust topline growth driven by strong business momentum across categories
1 Mth 3 Mths 6 Mths 1 Yr
• Further, Marico's thrust on increasing traction in rural market by expanding its
5.5% 17.5% 25.8% 30.9%
distribution network through direct coverage of retail outlets,
• Launch of budget SKUs,
Stock Price Performance • Competitive/penetrative pricing and
140%
• New product initiatives such as coconut based cooling oil
130% • Further, the company’s profitability is likely to improve, going forward as raw
120% material prices seem to have peaked and are expected to soften due to flush
110%
100%
season, the impact of which will be visible during second and third quarter.
90% • Kaya domestic business has also shown signs of revival however it is yet to
80% achieve breakeven. Hence, we believe Kaya is likely to remain an overhang in
Sep-10
Nov-10
Dec-10
Aug-11
Sep-11
Oct-10
Apr-11
Feb-11
Mar-11
May-11
Jul-11
Jan-11
Jun-11
the near term.
Valuation and View
Marico Sensex As per the consensus estimates, Marico’s EPS will show a CAGR of 19.5% higher than its
competitor Dabur India. The company’s 2 year forward PEG ratio 0.91x is much lower than
it’s peer Dabur’s 1.21x, indicates a scope for share price appreciation.
9 Keynote Capitals Research
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KEYNOTE CAPITALS LTD.
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11 Keynote Capitals Research
