Godrej Vs Marico (Commodity Products)

Group 2 Members:Nishant Bangar Harshad Jain Vaibhav Chaudharauy Sunil SavrikarAadesh JainVishakha Aggrawal

EXECUTIVE SUMMARY

Presentation deals with Godrej’s present

Market situation

Risk

Overall Organization

Judgment regarding whether to go for Meager & Acquisition

Valuation of acquiring company

Where are they positioned, market capitalization, their product offerings, market segmentation, geographic distribution (International, Domestic, Rural & urban)

Analysis of Merger & Acquisition on the basis of

Discounted Cash Flows

FCFF & FCFE

Sensitivity Evaluation

Industrial Comparison

Godrej Limited (Consumer Products)

Company Analysis Board of Directors & Management Stock Price Valuations of last 2 years

About Godrej

Adi Godrej Vivek Gambhir NisabaChairman M.D. Executive Director

Godrej group

Nadir Godrej Bharat Doshi Jamshyd Godrej D. Shivakumar Tanya Dubash Ireena VittalA. Mahendran Narendra Ambwani Aman Mehta Omkar Goswani Bala Balachandran

VisionGodrej in every home &

work place

FoundersArdeshir Godrej Pirojsha Godrej

HQMUMBAI

Founded 1897

Values Integrity Trust To serve respect Environment

Brand Architecture

Home care

• Goodnight, HIT, Godrej Aer, Ezee, Air freshener Stella

Personal wash

• Godrej No.1, Cinthol, Cuticura, Proteket

Hair Care

• Godrej Expert, Godrej Nupur, Godrej Renew, Ilicit, 919’

Product Basket

Godrej Product Portfolio

48%

30%

11%6% 5%

Product Portfolio

Home Care

Personal Wash

Hair Care

Others

Export

Market Segmentation for Godrej

55%

15%

16%14%

Segmentation

Asia

Africa

LatAM

UK

Financials

Financials 2013 2014

Earning per Share(INR) 20.27 22.39

P/E 32 38.2

Sales Growth % 31.7% 14.6%

Net Debt Equity ratio 62.1 45.9

Dividend Yield (%) 0.8 0.6

Marico Limited

Company Overview Stock Price Valuation (Last 2 years) Board of Directors & Management

Marico Vision & Mission 2020

VISION

Consumer : For they are the reason we exist

Membership : For a sense of ownership empowers us

Excellence : For it unleashes our potential

Wealth : for it hinges our growth

Innovation : For it gives wings to ideas

MISSION

The Marico Innovation foundation’s mission is to provide the nation with first: A belief that innovation is possible and is the way to leapfrog India into the center stage of global business leadership and second: A framework to leverage innovation for quantum growth.

Head Office

Santa Cruz(East), Mumbai

Founder

Harsh Marawal

Founded

1987

Brand Architecture

Edible Oil

• Saffola

• Sweekar

Hair care

• After Shower & Livon

• Medicer

• Parachute, Slik n Shine, & shanti Amla

Kaya Skin Clinic

• India's best skin care clinic and proven best skin care treatment center,Cosmetics, skin care products, Recova, Dr. Lips

Other Products

• Setwet

• Zatak

• Revive

• Marico Innovations

Marico’s Product Portfolio

Coconut oil (Parachute & Nihar), 32%

Saffola, 16%International25%, 25%

Value Added Hair Oil, 18%

Others, 5%Youth Brands, 4%

Financials

Financials 2013 2014

Earning Per Share (INR) 5.6 7.5

P/E 45.0 33.6

Sales Growth % 14.7 2.0

Net Debt Equity Ratio 0.3 0.1

Dividend Yield % 0.2 1.6

Marico’s Group Structure

Marico’s Basket

Marico’s Basket

Why to Choose Marico?

How Marico will handle our weakness

Qualitative comparison with respect to industry

Quantitative Comparison with respect to industry

Qualitative Analysis

What Makes Marico different from others?

Stong Brand Equity

Robust Distribustion Chain & brand Recal

Fast grievances and Redressal

Higher Preference in distributors For Marico Compared to others in market

Fastest growing in market & Highly competitive

Rural Expansion

Shift in control – Promoter led to Team of Professionals

Focus on Dividend pay out & Organic Growth

Differentiating Order Management software

Growth Driven by value added products

Quantitative Analysis

Companies (FMCG) Stance- Buy/Sell Upside/ Downside (Percentage)

EPS GrowthFY 14-16(Percentage)

EV/EBITDA (X)FY- 15

HUL Sell -24 12 26.6

Nestle Sell -23 15 22.7

Dabur Sell -26 14 25.8

Godrej consumer Sell -27 16 23.2

GSK Consumer Sell -12 17 N.A

Marico Buy 6 21 18.4

ITC Sell N.A 16 N.A

VALUATION

FY15 FY16 FY17 FY18 FY19

EBIT 12033 14999 16929 20325.50976 24407.12499

Other Pre tax income 702 787 881 978.97234 1087.839776

total ebit 12735 15786 17810 21304.48209 25494.96476

tax expense 2408 3065 3500 4412.434017 5469.712773

pbt 12041 15323 17498 22062.17009 27348.56387

tax rate 0.19998339 0.200026105 0.20002286 0.2 0.2

post tax ebit 10188.21153 12628.38791 14247.59287 17043.58568 20395.97181

d&a 809 858 906 952.6485636 1001.698991

capex -1809 -1858 -1858 -1858 -1858

chance in net working capital -890 -1572 -1572 -1572 -1572

free cash flow to firm 10078.21153 13200.38791 14867.59287 17710.23424 21111.6708

net interest income/expense -694 -463 -313 0 0

post tax interest -555.2115273 -370.3879136 -250.3928449 0 0

net debt -6263 -3000 -3000 0 0

free cash flow to equity 3260 9830 11617.20002 17710.23424 21111.6708

TV 0 0 0 0 276864.9261

Total 10078.21153 13200.38791 14867.59287 17710.23424 297976.59691.108540179 1.228861329 1.362242158 1.510100166 1.6740067099091.426469 10741.96706 10914.06016 11727.85398 178002.0327

FIRM VALUE 220477.3404NET DEBT 21987EQUITY VALUE 198490.3404

SENSITIVITY ANALYSIS

220477.3404 8.80% 9.80% 10.85% 11.80% 12.80%

0% 215805.3884 191757.2832 171278.4076 156068.6372 142484.2895

1% 237755.147 208599.7033 184349.5326 166672.1466 151117.9354

2% 266160.717 229760.6927 200373.2437 179439.6376 161350.4045

3% 304361.3111 257145.5026 220477.3404 195108.8311 173671.1327

4% 358478.8195 293973.3503 246447.8054 214795.7665 188792.0263

5% 441079.2269 346146.1345 281290.9679 240272.977 207790.0722

FIRM VALUE

198490.3404 8.80% 9.80% 10.85% 11.80% 12.80%

0% 193818.3884 169770.2832 149291.4076 134081.6372 120497.2895

1% 215768.147 186612.7033 162362.5326 144685.1466 129130.9354

2% 244173.717 207773.6927 178386.2437 157452.6376 139363.4045

3% 282374.3111 235158.5026 198490.3404 173121.8311 151684.1327

4% 336491.8195 271986.3503 224460.8054 192808.7665 166805.0263

5% 419092.2269 324159.1345 259303.9679 218285.977 185803.0722

EQUITY VALUE

Transaction ConsiderartionsShareholder’s structure

• This involves the payment of the acquiring company's equity, issued to the stockholders of the target, at a determined ratio relative to the target’s value.

• The issuance of equity may improve the acquirer’s debt rating thereby reducing future cost of debt financings.

• There are transaction costs and risks in terms of a stockholders meeting (potential rejection of the deal), registration (if the acquirer is public), brokerage fees, etc. That said, the issuance of equity will generally provide more flexible deal structures.

• This will involve the payment of the Marico's equity, issued to the stockholders of Godrej, at a determined ratio relative to the Godrej’s value.

• The issuance of equity may improve the Marico’s debt rating thereby reducing future cost of debt financings.

• There will be transaction costs and risks in terms of a stockholders meeting (potential rejection of the deal), registration (if the acquirer is public), brokerage fees, etc. That said, the issuance of equity will generally provide more flexible deal structures.

Risk Factors

Macro Factors

Misgauging Strategic fit & Loss of competitive advantage

Over Dependence on other party

Cultural & organizational Misfit

Lacking in evaluation of Marico’s Culture

Lack of communication & coordination

Pursuing personal goals

Lack of importance to customer

Foreign exchange risk

Misfit with subsidiaries & holding

Risk Mitigation

In depth & fair Valuation of both organization

Training of staff & orientation program

Focus on coordination & collectivism

Avoid currency risk by hedging

Incentive to motivate staffs

Using communication system & IT technology

Vertical integration or Horizontal Integration

Consider cost factors & Quality improvement

Industry Overview

FMCG is 4th largest sector of Indian Economy

Market size of FMCG is Estimated to grow to USD74 billion in 2018 approx.

Rural 16% rise & urban 12% rise

FMCG beta – 0.64

CAGR – 14.7% to touch USD 110.04 Billion in Period 2012-20

Market Capitalization To reach USD 135 billion

Incremental Pick up in Consumption Volumes

Influences – Currency fluctuation