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Marico company update

Contributed by Angel Broking

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 Marico’s 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 Rs.29cr at the PBIT level on net sales of Rs.279cr (a loss of Rs.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.