MANAGEMENT DISCUSSION AND ANALYSIS REPORT
This discussion covers the financial results and other developments during April13-March 14 in respect of Marico Consolidated comprising its domestic FMCGbusiness and its International FMCG business (exports from India and the operations of itsoverseas subsidiaries). The Consolidated entity has been referred to as Maricoor Group or Your Group in this discussion.
Some statements in this discussion describing projections, estimates, expectations oroutlook may be forward looking. Actual results may however differ materially from thosestated on account of various factors such as changes in government regulations, taxregimes, economic developments within India and the countries within which the Groupconducts its business, exchange rate and interest rate movements, impact of competingproducts and their pricing, product demand and supply constraints.
INDUSTRY STRUCTURE AND DEVELOPMENT:
While the long term drivers of Indias consumption story continue to remain robustgiven its large population and demographic profile, the last financial year waschallenging. Slowing GDP growth and sustained inflationary pressure acted as a catalyst totemporarily hinder corporate earnings growth momentum, i.e. as consumers lose confidencein future income, they decrease consumption.
Muted wage growth coupled with double digit inflation is putting pressure on real wagegrowth. This has an adverse impact on urban middle income consumption. The trend in ruralwage growth is not looking good as well; with growth in rural real wages tapering from13.7% in December 2011 to 2.2% in August 2013 [Source: RBI].
One percent rise in GDP roughly adds 1.5 million direct jobs, each job creates threeindirect jobs, and each job supports five people. This means 30 million people areimpacted by one percent growth. The 4 percentage point decline in GDP over the last 3years has therefore impacted earnings (and consumption) of approximately 120 millionpeople.
Growth moderation, high inflation, negative real wage inflation and lack of employmentgeneration have hurt consumer sentiment. Rising inflation and negative real wage inflationimply greater share of wallet going towards non-discretionary items, hence less money tospend on discretionary consumer goods.
Although key economic indicators worsened in the past 3 years, demographic and socialindicators have seen improvement. All India literacy rates have hit new highs andpopulation growth rate, although higher than the global average, has slowed significantly.With improvement in economic growth and slowing population growth, the countrys percapita income is expected to rise further. Per capita disposable income in India has beengrowing at c.13% since 2005 which is higher than the average CPI inflation of c.9%. Thishas resulted in spending on discretionary categories increasing substantially. It has alsoenabled consumers to upgrade to premium products.
Urbanization remains Indias driving force and a key engine of growth accelerationin the past decade. Indias urban sector presently contributes c.63% of IndiasGDP (from 45% in 1990). It is estimated that this contribution could go up to 70-75% ofGDP by 2020 [Source: Barclays Research]. Government focus on urban infrastructure andorganized sector jobs would result in the revival of urban sector.
Urbanization has a direct impact on discretionary spends of consumers. Discretionaryconsumption is in its infancy in India. Indias per capita consumption in mostdiscretionary categories is less than 25% of the emerging market average, and the share ofunorganised/local brands is more than 60% in most categories. Besides rising incomes,structural drivers like nuclear families, the rising number of working women andaspirations aid growth in discretionary spends.
Favorable demographics are one of Indias key, sustainable, long-term advantages.A young population is at the heart of Indias demographic dividend. Thus, althoughthe share of working-age population in total population has peaked in most developed andmany developing countries, in India, it will continue to rise until 2035 [Source: CensusIndia]. Such a demographic situation generally brings a surge in economic growth as gainsto society from those in the productive age far outweigh the burden of supporting the oldand the very young. The rising share of young population will support the uptick indomestic consumption and household savings. Both of these are already large components ofthe economy and they result in growth being domestically driven. This will be a key driverof Indias long-term growth despite the current downturn. The dividend typically addstwo percentage points to per capita GDP growth per year, as many economically successfulcountries have demonstrated in the past.
Rural India continues to remain a huge opportunity for consumer companies in India.Over the past decade, the government has stepped up its spending in rural areas leading todouble digit growth in per capita income in rural India. The total government spending inrural India increased to INR 800 billion in 2014 from INR 290 billion in 2008. Minimumsupport price (announced by the government) for various commodities is up c.3x in2007-2013. Higher disposable income in rural has led to consistent outperformance of ruralconsumption growth as compared to urban. However, future growth in rural spends might notmatch up to the historical trends. Growth in rural is expected to now come from expandingdistribution networks.
There is a lot to be optimistic about the long term potential of the consumer sector inIndia. In spite of the near term difficulties, the fundamentals of the Indian economy arerobust.
FY14 was a challenging year for Bangladesh. Post the general elections,political situation and economic sentiments have started to ease, thereby sending positivesignals to the business environment. However the political uncertainty continues to somedegree.
Inflation rate increased during the year mainly due to increasing food inflation onaccount of supply disruptions and wage increases. The International Monetary Fund (IMF)has reduced the estimated growth rate for Bangladeshs economy for FY14 to 5.4% ascompared to 6% last year. BDT has remained strong against USD as the countrys forexreserve crossed USD 20 billion mark for the first time in history.
Like India, Bangladesh promises substantial long term potential in terms ofsocio-economic growth. The country has a demographic profile very similar to that ofIndia. A population in excess of 160 million and a developing economy provide the perfectconsumer base for the FMCG sector to flourish.
Middle East and North Africa (MENA)
Middle East offers a curious mix of local and expatriate population. This provides FMCGcompanies opportunities to offer branded solutions tailored to the needs of the consumerin the region. Dubais economic outlook remains bullish over the coming years as awhole host of sectors possess significant growth prospects. Real GDP for Dubai isforecasted at 4.3% in 2014 and 4.5% in 2015 on the back of tourism, real estate and retailsectors. GDP growth in KSA is forecasted to be at 3.4% spurred by sustained domesticdemand and governments ongoing infrastructure spending. Retail sales are set tobenefit over the years from structural factors, including rising disposable income,favorable demographics, and increasing urbanization.
The Egyptian economy has embraced liberalization in the recent past, thereby openingthe doors to foreign direct investment and paving the path to economic growth. However,higher inflation levels and deteriorating foreign currency reserves along with theunstable political situation poses a threat to economic growth of the country. GDP growthhas toppled from around 7% in 2006 to expected 1.5% for the year.
A steadily growing population and a developing economy provide a good base for FMCGcompanies. Penetration levels in hair grooming and skin care products are modest. Egyptalso offers a gateway to North African countries such as Algeria, Libya and Morocco.
Our outlook on the long term trends in demand for personal care products in the MENAregion remains positive.
Vietnam is one of the fastest growing countries in South East Asia, with a GDP growthof about 6%. In 2013, the GDP growth was at 5.4%, lower than estimated 6.3%. Thedemographics of the country are very promising, with an extremely young populationproviding an opportunity for FMCG companies to grow rapidly. The country is in the periodof integrating into the worlds economy, as part of globalization.
The South African economy is the second largest in Africa behind Nigeria and accountsfor 24% of its GDP in terms of purchasing power parity. High levels of unemployment andinequality are considered to be the most salient economic problems facing the country. Thelong-term potential growth rate of South Africa has been estimated at 3.5%.
However in the near term, South African economy is expected to remain below potentialon higher inflation and interest rates, depreciating currency and subdued domestic demand.In FY14 the household consumption expenditure was contained by slower income growth, highinflation and lower wage payments.
In spite of the near term challenges, South Africa offers a unique opportunity inethnic hair care and grooming. The country also forms a gateway to the rest of sub-SaharanAfrica. Africa is the fastest growing region after China and India, boasting unexploitedmineral wealth, 60% of the worlds uncultivated agricultural land and the youngestage profile of any continent.
RISKS & CONCERNS:
Changing Consumer Preferences
A shift in consumer preferences could adversely affect demand. Given the explosion ofsocial media, the speed of such shift could be very swift. Your Group investssignificantly in consumer insighting to adapt to changing preferences. It also invests ineducating the consumers about the functional benefits of using its products. The objectiveis to expand the categories in which the Group operates.
Unexpected changes in commodity prices can reduce margins. The past few years havewitnessed wide fluctuations in the price of input materials. As a result, the overalllevel of uncertainty in the environment continues to remain high.
However, brands with greater equity and pricing power may find it easier to adjustprices when the input prices increase and hold prices when the input prices decline.Further, a firms agility to manage price volatility will determine its win at themarket place.
In situations of economic constraints, items which are in the nature of discretionaryspending are the first to be curtailed. In an extended recession, down trading frombranded to non-branded or premium to mass market products could occur and affect thefinancial performance of the Company.
The competitive intensity in the FMCG sector in India is high and companies need tofocus on branding, distribution and innovation to ensure their survival. Countercampaigning by competitors could reduce the efficacy of promotions. Similarly, aggressivepricing stances by competition have the potential of creating a disruption. Marico hasrecently entered categories such as mass skin care, breakfast cereals, hair styling, postwash leave-on conditioners, deodorants and hair colours where the competitive intensity isrelatively higher as compared to the segments it has been operating in hitherto, such ascoconut oil, hair oils and refined edible oils.
Product Innovation and New Product Launches
Success rate for new product launches in the FMCG sector is low. New products may notbe accepted by the consumer or may fail to achieve the targeted sales volume or value.Cost overruns and cannibalization of sales in existing products cannot be ruled out.Marico has adopted the prototyping approach to new product introductions that helpsmaintain a healthy pipeline and at the same time limits the downside risks.
Foreign Currency Exposure
The Marico Group has a significant presence in Bangladesh, South East Asia, MiddleEast, Egypt and South Africa. The Group is therefore exposed to a wide variety ofcurrencies like the US Dollar, South African Rand, Bangladeshi Taka, UAE Dirham, EgyptianPound, Malaysian Ringgit, and Vietnamese Dong. Import payments are made in variouscurrencies including but not limited to the US Dollar, Australian Dollar and MalaysianRinggit.
Significant fluctuation in these currencies could impact the Companys financialperformance. The Company is, however, conservative in its approach and uses plain vanillahedging mechanisms.
Though the FMCG sector is not capital intensive, fund requirements arise on account ofinventory position building, capital expenditure undertaken or funding inorganic growth.Changes in interest regime and in the terms of borrowing will impact the financialperformance of the Group. The Group maintains comfortable liquidity positions, therebyinsulating itself from short term volatility in interest rates.
This may take the form of purchasing brands or purchase of stake in another company andis used as a means for gaining access to new markets or categories, or increasing marketshare. Acquisitions may divert management attention or result in increased debt burden onthe parent entity. It may also expose the company to country specific risk. Integration ofoperations and cultural harmonization may also take time thereby deferring benefits ofsynergies of unification.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
Marico has a well-established and comprehensive internal control structure across thevalue chain to ensure that all assets are safeguarded and protected against loss fromunauthorized use or disposition that transactions are authorized, recorded and reportedcorrectly and that operations are conducted in an efficient and cost effective manner. Thekey constituents of the internal control system are:
Establishment and periodic review of business plans Identification of key risks andopportunities and regular reviews by top management and the Board of DirectorsPolicies on operational and strategic risk management Clear and well definedorganization structure and limits of financial authority Continuous identificationof areas requiring strengthening of internal controls.
Operating procedures to ensure effectiveness of business processes
Systems of monitoring compliance with statutory regulations
Well-defined principles and procedures for evaluation of new business proposals/capital expenditure
A robust management information system
A robust internal audit and review system
Ernst & Young LLP has been carrying out internal audits for Marico for the lastthree years. The work of internal auditors is coordinated by an internal team at Marico.This combination of Maricos internal team and expertise of a professional firmensures independence as well as effective value addition.
Internal audits are undertaken on a continuous basis, covering various areas across thevalue chain like manufacturing, operations, sales and distribution, marketing and finance.The internal audit program is reviewed by the Audit Committee at the beginning of the yearto ensure that the coverage of the areas is adequate. Reports of the internal auditors areregularly reviewed by the management and corrective action is initiated to strengthen thecontrols and enhance the effectiveness of the existing systems. Summaries of the reportsare presented to the Audit Committee of the Board.
The statutory auditors, as part of their audit process, carry out a systems and processaudit to ensure that the ERP and other IT systems used for transaction processing haveadequate internal controls embedded to ensure preventive and detective controls. The auditreport is reviewed by the management for corrective actions and the same is also presentedto and reviewed by the Audit Committee of the Board.
THE MARICO GROWTH STORY
Marico achieved revenue from operations of INR 4,687 Crore (USD 781 million) duringFY14, a growth of 10% over FY13 (FMCG Business). The volume growth underlying this revenuegrowth was at 6%. Profit after Tax (PAT) for FY14 was INR 485 Crore (USD 81 million), agrowth of 12% over FY13 (including exceptional items). Excluding the one-time accountingadjustments made in FY13, the PAT growth for the year was at 19%.
During FY14, the Company received 900% dividend from Marico Bangladesh Limited on whichincome tax charge of INR 34.5 Crore was accounted in the books. This has increased theeffective tax rate (ETR) for the year. Profit growth excluding this tax impact is 26% forFY14.
Over the past 5 years, the FMCG topline and bottom line have grown at a compoundedannual growth rate (CAGR) of 16% and 21% respectively.
DOMESTIC FMCG BUSINESS: MARICO INDIA
Parachute and Nihar
Marico participates in the INR 2800 Crore (USD 466 million) branded coconut oil marketthrough Parachute and Nihar. It is estimated that in volume terms of the total coconut oilmarket about 60% to 65% is in branded form and the balance is loose. With growingaspirations to use branded products, this loose component provides headroom for growth tobranded players. The Companys flagship brand Parachute, being the market leader, iswell placed to capture disproportionate share of this growth potential on a sustainablebasis.
Parachutes rigid portfolio (packs in blue bottles), recorded a volume growth ofabout 4% for FY14 over FY13. Copra prices on an annual average have moved up 51% comparedto FY13. It is generally observed that an inflationary environment swings the competitiveposition to the Companys advantage as it puts pressure on the working capitalrequirements of marginal players. Moreover, an inferior cost structure and thin marginscompel smaller competitors to pass on almost all the increases in input costs, whilst theCompany can opt to absorb a part of the cost push. In a year when the category grew at aslower rate, Parachute along with Nihar marginally improved its market share over the sameperiod last year to 56%.
Growth is being contemplated through conversion from loose oil usage to branded oil andby share gain in rural areas. Parachutes share in the rural markets, in the range of35% to 40%, is lower than that in the urban markets, thus providing potential headroom forgrowth.
Due to a spurt in copra prices from mid-2013 onwards, the Company has initiated aseries of price increases. Weighted average price increase of 9% and 4% was taken in thesecond and third quarter of the year. The Company had initiated another round of priceincrease in April14 of about 12-13% across the portfolio on a weighted averagebasis, taking the point to point increase to about 25%. This is sufficient to pass on thecost push and maintain absolute margins, though percentage margins may appear lower on theincreased realization base.
The Saffola refined edible oils franchise grew by 9% in volume terms during FY14compared to FY13. The brand has been able to reverse a softer performance in 2012-13 andaccelerate in the second half of the year based on its effective equity buildingcommunication.
The Company has revamped its top-end variant i.e., New Saffola with an improved and topof the line offering for modern day needs Saffola Total. The Company also initiateda new communication strategy to establish its superiority. The strategy was implementedwith the release of High Science campaign in which the consumers were informed ofthe reasons why Saffola is a better product to consume. The brand has seen good tractionsince launch. The Companys approach is to deliver a product that is best for theconsumers based on science rather than offer plain commodities.
As a result of growing affluence in India, consumers are proactively moving on tohealthy lifestyles. Moreover, awareness about health has been increasing in India.Saffola has made a significant contribution towards increasing the awareness about hearthealth (www.saffolalife.com).
The Saffola range of blended refined oils (available in four variants) operates in thesuper premium niche of the refined edible oils market. Saffola is estimated to reach over3 million households of the 22 million SEC A/B households in India. The brand maintainedits leadership position in the super premium refined edible oils segment with a marketshare of about 55% during the 12 months ended March 2014 (MAT 12 months ended March 13:57%).
In the long term, Saffola expects to establish itself as a leading healthy lifestylebrand that offers healthy food options during all meals of the day. The rise in the numberof nuclear households and that of working women provides an opportunity for convenient andhealthy breakfast food options. The intent of the Company is to come up with value addedofferings. Saffola savory oats are now available in six flavors. Saffola has a marketshare of over 14% by volume in the oats category and has emerged as the number two playerin the category. Saffola Oats has increased its market share by about 24 bps as comparedto last year. Saffola Oats crossed Rs. 50 Crore landmark (USD 8 .3 million) in top lineduring the year under review.
The Company expects to continue the robust growth in Oats.
Maricos hair oil brands (Parachute Advansed, Nihar Naturals and Hair & Care)grew by 11% in volume terms during FY14 over FY13. Marico continues to gain market sharein Value Added Hair Oils and has emerged as a clear market leader with 28% share (for 12months ended March 2014) in the INR 4500 Crore (USD 834 million) market as against 26%during the same period last year.
These market share gains have been achieved through providing consumers with specificsolutions, product innovation, packaging restaging, participation in more sub-segments ofthe value added hair oils category, continued media support in some of the brands andpenetrative pricing action in others and expansion of Maricos direct retail reach inthe rural markets.
Nihar Shanti Amla continues to gain market share and achieved a volume market share ofabout 30% for the 12 months ended March 2014 in the Amla hair oils category (FY13: 25%).Nihar Shanti Amla is now a INR 250 Crore (USD 41.7 million) brand.
Hair oiling is a deeply ingrained habit for leave-in hair conditioning on the Indiansub-continent. The Company has carried out scientific research and conducted successfulclinical trials to establish the benefits of hair oiling. The Company believes thateducating consumers by putting science behind the habit of hair oiling will buildcredibility and create a loyal franchise. (www.parachuteadvansed.com). There is also anemergence of new age hair oils such as argon & mythic oil in the developed marketsthat could create a super-premium segment in India too. This serves to emphasize theconditioning property of hair oils.
Hair oil category has been amongst the fastest growing large sized FMCG segments inIndia. The category has grown at 17% to 18% CAGR over the last 5 years. Marico has acategory play in the segment whereby it offers its consumers a basket of value addedhair oils for their pre-wash and post wash leave-in hair conditioning, nourishment andgrooming needs. The Companys aim is to participate in all the sub-segments and havea wider portfolio to drive growth. Each brand in the portfolio has grown the overall hairoils franchise by bringing specificity and creating more occasions for use. There may alsobe an opportunity to enhance the overall sensorial experience of using hair oils bycontemporizing the product and packaging formats.
Parachute Advansed Body Lotion
The Company launched Indias first unique multidimensional spray-onbody lotion. It has a fragrant non-sticky formulation with double sunscreen to cool downthe skin and protect it from the harmful effects of the sun. The new launch will beextensively supported with heavy media and visibility campaign. The variant has beenlaunched in a 100ml SKU with an introductory price of INR 99 .
Parachute Advansed Body Lotion has been voted the no.1 body lotion by Consumer Voice, aGovernment of India recognized organization. When tested on improvement in skin texture,the ability to make skin soft and supple, and other such factors, Parachute Advansed BodyLotion beat the top 12 leading body lotion brands. The brand also won three Effie Awardson debut in Integrated Campaign, Consumer Products and David vs Goliath categories.
The total skin care segment is estimated to be around INR 5000 Crore (USD 833 million)out of which the body lotion segment is around INR 550 Crore (USD 92 million) withpenetration levels below 20%. The Company plans to increase its participation in the skincare segment in the longer term.
Due to the challenging environment, the body lotion category growth rate has fallen tosingle digit. Parachure Advansed Body Lotion has maintained its no.3 position with amarket share of 6%. The Company expects the brand to be back on track next year.(www.facebook.com/Parachute Advansed Body Lotion)
Youth brands (Set Wet, Zatak, Livon)
The acquired portfolio of youth brands grew by 16% during the year over FY13. Due toinflationary trend and restricted spends on discretionary products, the category growthrates of Post Wash Serums, Hair Gels/Creams and Deodorants have come off considerably.
There is a fair degree of consolidation in two of the three streams in theCompanys youth portfolio. The Company has established a leadership position in theHair Gels and Post Wash Leave-on conditioner (2/3rd of the Youth Portfolio) market withabout 33% and 82% share respectively. High share is expected to benefit the Companysbrands as they participate in market growth over the medium term.
Set Wet and Zatak deodorants (a third of the Youth portfolio) increased its marketshare marginally to 5% for 12 months ended March 2014, in this crowded category. InFebruary, Set Wet launched a new variant Set Wet Infinity, a non-aerosol perfume spraywith no-gas formulation. The launch was supported by an extensive mediacampaign during the IPL7 cricket season. Set Wet (Deodorants and Gels) is now a INR 100Crore (USD 16.7 million) brand with a strong equity and growing consumer franchise.
Over the next few years, the Companys growth rates are likely to average around20-25% supported by new advertisement communication and product launches. However in theimmediate term, the growth rates are more likely to be around 15-20%. In the medium termthe company expects some consolidation to take place in the category and gain from ourwider distribution supported by brand building initiatives. However, the environment inthe immediate term is challenging and the category growth may be lower than the mediumterm outlook.
This youth portfolio will also witness a much higher interaction with overseasportfolio thereby leveraging scale and innovation synergies.
Livon Conditioning Cream Colour
This year, the Company entered the Hair Colour category by introducing LivonConditioning Cream Colour. This is a highly differentiated no ammonia productwhich gives women natural looking coloured hair which is soft and shiny. Priced only atRs.39, the Livon Conditioning Cream Colour Kit is packed with features that no other brandof hair colour offers. The product was introduced in January 2014 and is available inthree colours with two SKUs.
The total hair colour category has low penetration and is estimated to be around INR2500 Crores (USD 400 million), of which creams form about 25%. The cream format is thefastest growing in the hair color category with growth rates of about 20%. The Companywill focus on expanding the category by recruiting new users and upgrading powder andhenna users by providing them a superior product at an affordable range. Entry into thehair colour category not only strengthens the Companys hair care portfolio in Indiabut also establishes our presence in categories which are replicable in other geographies.
Bio-Oil, a distribution alliance with Union Swiss
In partnership with Union Swiss, the Company has introduced Bio-Oil in India duringFY14. Union Swiss is a privately owned MNC based in South Africa. It researches, developsand manufactures oil based skin care products which it licenses for distribution acrossthe world. Marico will be marketing and distributing its flagship brand, Bio-Oil, in Indiaon an exclusive basis. With presence in 76 countries, Bio-Oil is the No.1 selling productto improve appearance of scars and stretch marks.
Bio-Oil is positioned as a premium skin care product priced at Rs. 450 for 60 ml. Scarand stretch mark category is estimated to be around INR 650 Crores (USD 105 million). Itis a nascent category dominated by clinical-looking products with limited categorybuilding investments. Bio-Oil promises to revolutionize the space by balancingefficacy with beauty, bringing about a fundamental shift in how the categoryoperates. This marks Maricos foray into premium specialist skin care category.Having Bio-Oil in the portfolio will further strengthen Maricos presence in channelssuch as chemists and modern trade. The Company will earn an operating margin higher thanthe current Company average. The scale of business is however very small in Maricosoverall context.
INTERNATIONAL FMCG BUSINESS:
Over the years, two platforms have emerged as a core to international business HairNourishment and Grooming. With focus on emerging markets of Asia and Africa, the Companyoperates in geographic hubs leading to supply chain and media synergies. The portfolio inIndia will also witness a much higher interaction with the international portfolio therebyleveraging scale and innovation synergies. Such focused commonalities in portfolio coupledwith market leadership will help the Company create centers of excellenceacross these hubs and transfer learnings across geographies.
The year FY14 began with the unification of India and International leadership whichwill enhance and accelerate this process. The focus of international business in thecoming years will be organic growth. Margins will be maintained in a band and re-investedin the business to reinforce established brands and build new growth engines for thefuture.
Maricos International FMCG business (its key geographical constituents beingBangladesh, Middle East, Egypt, South Africa and South East Asia) comprised ~25% of theMarico Groups turnover in FY14.
The overall growth in Marico International was 16%. The underlying volume growth forthe year was 5% over FY13. The Operating margin for the year as a whole was about 16.4%.The Company believes that the sustainable margins are more in the region of 14-15%. Thisdemonstrates a structural shift in International margins based on the cost managementprojects undertaken in the last one year.
Due to the macro-economic instability during the year, the business has grown by 4% ona constant currency basis in FY14. However, owing to the brand strength, the businessrecorded robust bottom line growth.
The Company continues to make investments behind existing and new products such a ValueAdded Hair Oils (VAHO), Hair Dye, Deodorants, Leave-on conditioners and Premium Edibleoils. These products continue to gain traction and are expected to help create a portfolioof the future in Bangladesh. The Companys value added hair oils portfolio maintainedits market share at 18.5% on MAT basis. It holds no.3 position in VAHO category on MATbasis. However, on the basis of exit market share, Marico is now no.2 in the category with20% share.
The Companys Hair Code brand (coupled with its newer variant HairCode Active)continues to lead the powdered hair dye market with a market share of around 36%.
During the year, Bangladesh business has made significant journey towards new productslaunch and entering new categories to strengthen the portfolio for future growth. HairCodeKeshkala (Liquid hair dye), Livon, Set Wet and Saffola Active offers a substantialproposition for future roadmap in Bangladesh. The Company expects to leverage its strongdistribution network and learning from the India market to quickly scale up its newproduct introductions in Bangladesh.
MENA (Middle East and North Africa)
The MENA business on an overall basis grew by 4% (constant currency basis) during FY14as compared to FY13. This is mainly on account of strong 21% business growth in Egyptprimarily led by volume growth in HairCode and Fiance. The GCC business reported toplinedecline of 20% for the year. However, the region has started showing signs of revival andreported topline growth in the fourth quarter of the year. This trend of improvement willcontinue over the next year.
In Egypt, HairCode and Fiance together improved its market share to 52% in the gelscategory and reported double digit volume growths.
The Companys performance in the Middle East region faced challenges during mostof the previous year due to some execution issues. Various steps have been taken duringthe last year such as distributor transition in KSA region, restructuring of the businessmodel and SKU rationalization which has led to a significant shift in profitability thisyear.
South East Asia
The business in South East Asia (of which Vietnam comprises a significant portion) grewby 11% over FY13. Business in Vietnam was largely affected by sluggishness in the overalleconomy leading to reduced consumer confidence. Vietnam is expected to face consumptionheadwinds in the immediate term. X-Men maintained its leadership in male shampoos and thenumber two position in male deodorants. Over the medium term the Company remains wellpoised to participate in the category growths when economic growth picks up. The Companycontinues to scale up its presence in neighboring countries like Malaysia, Myanmar andCambodia.
The business reported a topline growth of 5% for the full year. The businessenvironment continues to be challenging with the ethnic hair care segments declining.Marico South Africa has, however, gained market share in the category over the past fewyears.
RESULTS OF OPERATIONS AN OVERVIEW
Marico achieved revenue from operations of INR 4,687 Crore during FY14, a growth of 10%over FY13. The volume growth underlying this revenue growth was 6%.
Profit after tax (PAT) for FY14 was INR 485 Crore, a growth of 12% over FY13. Theseresults include the following items that are not strictly comparable. Profit growthwithout considering these non-comparable items is given below:
| || || |
|Particulars ||FY14 ||FY13 |
|Reported PAT ||485.4 ||433.9 |
|Exceptional Items || || |
|Marico India ||- ||22.0 |
|Depreciation gain on account of method change ||- ||17.6 |
|Gain on account of brand valuation in MCCL ||- ||4.4 |
|Marico International ||- ||2.8 |
|Depreciation gain on account of method change ||- ||0.2 |
|Profit on sale of MBL soap plant ||- ||2.6 |
|Corporate ||- ||0.1 |
|Depreciation gain on account of method change ||- ||0.1 |
|MCCL Brand Depreciation ||- ||(6.1) |
|Finance Write Back ||- ||6.1 |
|Total ||- ||24.9 |
|Comparable PAT ||485.4 ||409.0 |
|Growth ||19% || |
|Tax on MBL Dividend ||34.5 ||3.2 |
|PAT excluding Tax on MBL Dividend ||519.9 ||412.2 |
|PAT Growth excluding MBL Dividend Impact ||26% || |
FY13 figures do not include the Skin Care Business (Kaya) in order to make themcomparable to FY14, which relate only to the FMCG business.
Total income consists of the following
1. Revenue from Operations includes Sales from Consumer Products includingcoconut oil, value added hair oils, premium refined edible oils, anti-licetreatments, fabric care, edible salt, functional and other processed foods,hair creams & gels, hair serums, hair colours, shampoos, hair relaxers &straightners, deodorants and other similar consumer products, by products, scrapsales and certain other operating income.
2. Other Income primarily includes profits on sale of investments, dividends, interestand miscellaneous income.
The following table shows the details of income from sales and services for FY14 andFY13.
Particulars FY14 FY13
Revenue from Operations 4686.5 4,260.2 Other Income 57.9 43.6 Total Income 4744.44303.8
There has been 10% growth in Revenue from Operations on account of 8% growth in MaricoIndia and 16% growth in Marico International. The underlying volume growth was 6% at Grouplevel.
The following table sets the expenses and certain other profit and loss account lineitems for the years FY14 and FY13:
| || || || || |
|Particulars ||FY14 ||FY13 |
| ||Amount ||% of Revenue ||Amount ||% of Revenue |
|Revenue from Operations ||4,686.5 || ||4,260.2 || |
|Expenditure || || || || |
|Cost of Materials ||2,399.2 ||51.2% ||2,169.3 ||50.9% |
|Employees Cost ||284.7 ||6.1% ||263.2 ||6.2% |
|Advertisement and Sales Promotion ||561.2 ||12.0% ||570.7 ||13.4% |
|Depreciation, Amortisation and Impairment ||76.9 ||1.6% ||61.6 ||1.4% |
|Other Expenditure ||693.5 ||14.8% ||655.5 ||15.4% |
|Finance Charges ||34.5 ||0.7% ||49.8 ||1.2% |
|Exceptional Items ||- ||0.0% ||(52.4) ||-1.2% |
|Tax ||190.5 ||4.1% ||142.3 ||3.3% |
FY13 figures do not include the Skin Care Business (Kaya) in order to make themcomparable to FY14, which relate only to the FMCG business.
Cost of Materials
Cost of material comprises consumption of raw material, packing material, semi-finishedgoods, purchase of finished goods for re-sale and increase or decrease in the stocks offinished goods, byproducts and work in progress. At an overall level the cost of goodssold was 27 bps higher in FY14 as compared to FY13.
On a full year basis, the copra prices have been up by 51% compared to last year.Historically it is noted that copra prices are driven by market sentiments during extremesupply and demand imbalances causing sharp increase or decrease in prices before itsettles down to fundamentally logical levels. The market prices of the other key input,Safflower Oil and Rice Bran Oil has been down 31% and 5% respectively. Considering copraaccounts for a major proportion of input costs the Company margins declined on a net basisduring FY14.
Employee cost includes salaries, wages, bonus and gratuity, contribution to providentand other funds and staff welfare schemes expenses.
The Company has an extensive process of performance management enhancement through thedeployment of MBR (Management By Results), which is intended to create an environmentwhere employees are encouraged to challenge and stretch themselves. Linked to this is avariable compensation element based on the Companys target achievement and theindividuals performances against goals identified. The increase in employee costs isprimarily on account of normal annual compensation revisions and increase in headcount. Asa percentage of revenue, employee costs stayed at the same level as last year.
Advertisement and Sales Promotion
The Company continues to make investments behind existing products and new productssuch as Livon Color, Saffola Total, Saffola Oats, Parachute Advansed Body Lotion, Youthbrands in India and Value Added Hair Oils in Bangladesh. ASP spends on new productscomprises significant part of the overall ASP. Overall ASP spends have decreased by 142bps for the year as a whole. ASP spends have come down on account of higher number of newlaunches last year such as Parachute Advansed Tender Coconut Oil, Saffola muesli and ParachuteAdvansed Body Lotion.
Depreciation, Amortisation and Impairment
For the year as a whole, depreciation has increased from INR 61.6 Crore (USD 9.9million) in FY13 to INR 76.9 Crore (USD 12.4 million) in FY14. The increase indepreciation is largely on account of impairment of certain plant and machinery items atsome of its plants in India. The other factors are: depreciation on new corporate officebuilding and its interiors, new copra crushing plant in Bangladesh, amortization of thebrand Fiance and other additions made during the year.
The other expenses include certain items which are variable in nature (almost 2/3rd ofother expenses).
Fixed Expenses include items such as rent, legal and professional charges, donation,certain one-time project based consulting charges for capability building and valueenhancement in the organization.
Variable Expenses include items such as freight, subcontracting charges, power andfuel, warehousing etc. The variable expenses have grown slower than growth in sales mainlydue to reduction in Marico Bangladesh as a result of shifting of crushing from third partyoperators to own factory.
| || || || |
|Other Expenses ||FY14 ||FY13 ||% Variation |
|7BSJBCMF ||- ||- ||- |
|'JYFE ||- ||- ||- |
|5PUBM_ ||- ||- ||- |
Finance charges include interest on loans and other financial charges. Reduction infinance charges are in line with reduction in the Companys Net Debt.
The Effective Tax Rate (ETR) for the business during FY14 was 27.4% as compared to24.3% during FY13. The increase in the ETR is primarily due to tax on dividend receivedfrom Bangladesh. The normalized ETR without considering the impact of Bangladesh dividendis 23.1% in FY14 and 22.7% in FY13.
|Particulars || || |
| ||As at March 31, 2014 ||As at March 31, 2013 |
|A. EQUITY AND LIABILITIES || || |
|1 Shareholders' Funds || || |
|(a) Share Capital ||64.49 ||64.48 |
|(b) Reserves & Surplus ||1,296.15 ||1,804.00 |
|Sub-total Shareholder's fund ||1,360.63 ||1,868.47 |
|2 Minority Interest ||35.79 ||35.14 |
|3 Non-current liabilities || || |
|(a) Long-term borrowings ||251.54 ||376.83 |
|(b) Deferred tax liabilities (Net) ||9.61 ||(0.89) |
|(c) Other Long-term liabilities ||0.01 ||0.98 |
|(d) Long-term provisions ||3.32 ||3.71 |
|Sub-total Non-current liabilities ||264.48 ||380.64 |
|4 Current Liabilities || || |
|(a) Short-term borrowings ||274.35 ||358.07 |
|(b) Trade payables ||502.51 ||459.23 |
|(c) Other current liabilities ||444.81 ||184.77 |
|(d) Short-term provisions ||82.37 ||70.98 |
|Sub-total current liabilities ||1,304.05 ||1,073.05 |
|TOTAL - EQUITY AND LIABILITIES ||2,964.95 ||3,357.30 |
|B ASSETS || || |
|1 Non-current assets || || |
|(a) Fixed assets ||637.75 ||1,342.98 |
|(b) Goodwill on consolidation ||254.25 ||254.25 |
|(c) Non-current investments ||49.86 ||38.03 |
|(d) Long-term loans and advances ||60.93 ||100.53 |
|(e) Other non-current assets ||155.03 ||142.34 |
|Sub-total Non-current assets ||1,157.82 ||1,878.12 |
|2 Current assets || || |
|(a) Current investments ||260.67 ||72.11 |
|(b) Inventories ||796.24 ||837.53 |
|(c) Trade receivables ||223.19 ||195.44 |
|(d) Cash and cash equivalents ||406.39 ||238.54 |
|(e) Short-term loans and advances ||86.47 ||122.92 |
|(f) Other current assets ||34.16 ||12.64 |
|Sub-total current assets ||1,807.13 ||1,479.18 |
|TOTAL - ASSETS ||2,964.95 ||3,357.30 |
Balance Sheet figures as on March 31, 2013 do not include the Skin Care Business (Kaya)in order to make them comparable to FY14, which relate only to the FMCG business.
This comprises the paid up share capital and reserves & surplus. Increase in ShareCapital is on account of stock options exercised by the employees under the ESOP Scheme.Annexure to the Directors Report provides further details of stock options issued,exercised and pending to be exercised.
Reduction in Reserves & Surplus is on account of Capital Reduction pertaining toMarico Consumer Care Ltd. (MCCL). Accordingly, intangible assets aggregating to INR 723.72Crore were adjusted against the Share Capital and Securities Premium Reserves.
Minority Interest represents the share of consolidated profits attributable tonon-Marico shareholders in Marico Bangladesh Limited and International Consumer ProductsCorporation:
1. Companys Bangladesh subsidiary, Marico Bangladesh Limited, had listed 10% ofits equity share capital on the Dhaka Stock Exchange in September 2009 by issuing freshshares to public in that country;
2. The Company acquired 85% stake in International Consumer Products Corporation (ICP)in Vietnam and started consolidating it with effect from February 18, 2011. The balance15% shareholding continues to be with the company founder.
Increase in minority interest is on account of increase in profits in Marico Bangladeshand ICP.
Non-current Liabilities include borrowings which are payable after one year or morefrom the date of the balance sheet and long term provisions such as gratuity. Theseinclude a judicious blend of borrowings in local and foreign currency. Non-currentliabilities have decreased on account of reclassification of current maturity of INR 100Crore debentures and USD 9 million term loan to Other Current liabilities.
Current liabilities mainly comprise the amounts payable by the Company for the purchaseof various input materials and services and short term provisions. Increase in currentliabilities is mainly on account of reclassification of current maturity of the abovementioned long term loans.
Fixed assets represent investments made by the Company in tangible assets such asBuildings, Plant & Machinery, Furniture & Fixtures etc.
Reduction in Fixed Assets is on account of Capital Reduction pertaining to MaricoConsumer Care Ltd. (MCCL). Accordingly, intangible assets aggregating to INR 723.72 Crorewere adjusted against the Share Capital and Securities Premium Reserves.
Goodwill on Consolidation
Goodwill on consolidation represents the consideration paid to acquire companies inexcess of their net assets at the time of acquisition. There is no material change inGoodwill on Consolidation as the Company did not make any acquisitions during the year.
Non-current Investments comprise long term investments the full value of which will notbe realized before one year from the date of the balance sheet. Increase in non-currentinvestments is on account of investments made in Bonds and Mutual Funds during the year.
Deferred Tax Asset (DTA)
Deferred Tax Asset represents the timing differences resulting due to variations in thetreatment of items as per Income Tax Act, 1961 and Indian GAAP.
Long-term Loans and Advances
Long-term Loans and advances include the amounts paid by the Company recoverable incash or in kind after 12 months from the balance sheet date. These include securitydeposits, advances paid to suppliers in select cases etc. Long-term Loans and Advanceshave decreased during the year mainly due to settlement of certain capital advances inFY14.
Other Non-current Assets
Other non-current assets include receivables/ entitlements maturing after more than 12months from the balance sheet date. Increase in Other Non-current assets is on account ofincrease of MAT credit entitlement.
Current investments comprise short term investments the full value of which will berealized before one year from the date of the balance sheet. It includes investments madein Mutual Funds. Increase in current investments is mainly on account of increase ininvestments in Mutual Funds.
Inventory includes the stocks of raw material, packing material, work in process andfinished goods held for sale in the ordinary course of business. Decrease in inventory ison account of shedding of inventory positions mainly in Marico Limited.
Trade Receivables include the monies to be received from its customers against salesmade to them. Increase in trade receivables is in line with increase in Sales.
Cash and Cash Equivalents
This includes amounts lying in Cash and with the Companys bankers. There is anincrease in the cash balances primarily due to increase in balance in Unpaid Dividendaccount. The unpaid dividend pertains mainly to the third one time silver jubilee dividenddeclared in March 2014 and paid in April 2014.
Short-term Loans and Advances
Short term loans and advances include monies to be received within one year from thedate of the balance sheet. Decrease in short term loans and advances are mainly on accountof repayment of the advances to Welfare of Mariconians Trust on maturity of STAR Scheme Iduring the year (also refer to Note 41 to the Consolidated Financials).
Other Current Assets
Other current assets include all other monies to be received within one year from thedate of the balance sheet, such as interest receivable, export incentive receivable etc.Increase in Other Current Assets is on account of reclassification of the fixed assets asHeld for Disposal (namely one of the Company office building), Land &Building at one of the manufacturing plants and accrued export incentive.
Given below is a snapshot of various capital efficiency ratios for Marico Group:
|Ratio ||FY14 ||FY13 |
|Return on Capital Employed-Marico Group ||25.1% ||23.5% |
|Return on Net Worth - (Group) ||22.9% ||25.3% |
|Working Capital Ratios (Group) || || |
|- Debtors Turnover (Days) ||16 ||16 |
|- Inventory Turnover (Days) ||64 ||67 |
|- Net Working Capital (Days) ||60 ||62 |
|Debt Equity (Group) ||0.35 ||0.44 |
|Finance Costs to Turnover (%) (Group) ||0.7% ||1.2% |
* Turnover Ratios calculated on the basis of average balances
1. Kaya impact has been removed from FY13 ratios in order to make them comparable toFY14.
2. The MCCL capital reduction has not been considered in FY14 ratios in order to makethem comparable to FY13. Marico Consumer Care Limited a wholly owned subsidiary of Marico,has under a scheme that was approved by Bombay High Court on 21st June 2013, adjusted thebook value of Youth Brands, amounting to INR 723 Crore, acquired during last year againstthe Securities Premium and paid up equity share capital. This has resulted in a decline inthe value of capital employed eading to an improvement in the reported ROCE, RONW and anincreased D:E ratio. The Company will endeavor to improve its return ratios going forward.
3. The variation in working capital ratios is due to: a. Decrease in inventory is onaccount of shedding of inventory positions mainly in Marico Limited.
4. Finance cost as a % of turnover has come down because the Net Debt of the Companyhas reduced significantly during the year.
5. The Net Debt position of the Marico Group as of March 31, 2014 is as below-
|Particulars ||March 31, 2014 ||March 31, 2014 |
|Gross Debt ||680 ||872 |
|Cash/Cash Equivalents & || || |
|Investments (Marico Ltd: INR 309 || || |
|Crore. Marico International: || || |
|INR 273 Crore) ||582 ||389 |
|Net Debt ||98 ||483 |
|Foreign Currency Denominated out of the total gross debt (54% of Gross Debt hedged) (Also refer to Note 4 below) ||441 ||584 |
|Foreign Currency Denominated: || || |
|Payable in One year ||190 ||252 |
|Foreign Currency Debt as a % age of Gross Debt ||65% ||67% |
|Rupee Debt out of the total gross debt ||239 ||278 |
|Rupee Debt: Payable in 1 Year ||239 ||187 |
|Total Debt Payable within 1 Year ||428 ||439 |
|Average Cost of Debt (%) : Pre tax ||4.0% ||5.7% |
The Company may roll over some of the loans when they fall due during the yearor redeem investments for repayment. Marico has adequate cash flows tomaintain healthy debt service coverage.
6. The Debt denominated in foreign currency is either hedged or enjoys a natural hedgeagainst future probable exports. Hence the MTM differences are routed through the balancesheet (Hedge Reserve) rather than the income statement.
7. The Company periodically reviews and hedges the variable interest liabilityfor long term loans using Interest Rate Swaps.
8. The Company had, opted for early adoption of Accounting Standard 30 FinancialInstruments: Recognitionand Measurement to the extent it does not conflict with existingmandatory accounting standards and other authoritative pronouncements.
Accordingly, the net unrealised loss of Rs. 76.3 Crores as at March 31, 2014 (Rs. 52.5Crores as at March 31, 2013) in respect of outstanding derivative instruments and foreigncurrency loans at the period end which qualify for hedge accounting, stands in theHedge Reserve, which is recognised in the Statement of Profit and Loss onoccurrence of the underlying transactions or forecast revenue.
The Companys distribution policy has aimed at sharing its prosperity with itsshareholders, through a formal earmarking/disbursement of profits to shareholders.
Keeping in mind the increase in the profits made by the Company over the last fiveyears and in an endeavor to maximize the returns to its shareholders, the Companyincreased its dividend payout during the year to 350% as compared to 100% during FY13.This includes a one-time Silver Jubilee dividend of 175%, declared on the occasion of 25years since incorporation. The overall dividend payout ratio is 47.3% as compared to 19.3%during FY13. Excluding the one-time dividend, the payout ratio for the year is 24.1%. TheCompany will endeavor to improve the dividend payout ratio further depending on theacquisition pipeline.
HUMAN RESOURCES (HR):
The mission of the HR Function at Marico is to partner business and attract and nurturetalent to succeed. The HR function is also the custodian of Maricos culture andgovernance standards. This year the function took on several initiatives to strengthen theorganization culture, build talent capability, enhance connect with members and potentialtalent and implement new governance standards. This included initiatives to integrate theinternational geographies with the Marico Way of Working while valuing the culturalaspects of each country. The key highlights are outlined below:
Marico believes that Culture is a key differentiator and a source of competitiveadvantage. Every year, Marico takes considerable effort to educate members onMaricos core cultural tenets and values to encourage them to live the Marico Values.This is done through Values Workshops, Values Conversations with Leaders and Living theValues booklet.
The Company strongly believes that celebrating small wins is a stepping stone toachieve big bets . In January 2014, Marico took a giant leap to drive a culture ofrecognition through a unique web-based recognition programme Maricognize. Theprogramme provides a platform for members to connect, inspire and celebrate achievementsand contributions. Maricognize has helped increase the frequency of recognition; in thefirst quarter itself there were 9,800+ recognitions & wishes for members.
This year, Marico renewed its Campus Connect programme, to enhance the Companysconnect with todays youth using their preferred platform the social media. MC2 isMaricos Facebook page for direct interaction with campus students. It upped the coolquotient with digital contests, recruitments, crowd sourcing ideas for socially relevantprojects, and constant updates and dialogues with students. In just a year of its launch,the page has more than 50,000 fans.
Talent attraction and development
Maricos Talent Value Proposition (TVP) to continuously challenge, enrich,and fulfill the aspirations of Mariconians so that they can maximize their true potentialto Make a Difference is an anchor for talent acquisition and development processes.
Talent Acquisition: Marico leverages multiple sources to hire talent laterally such asmember referral programme, TAREEF
Talent Referral, recruitment partners and the Company alumni. The Company also hiresfresh talent from premier technical and business schools.
Performance Management System: Management by Results (MBR) is Maricos performancemanagement process that aligns individual and team goals with the organizational thrustareas.
Talent Development: Personal Development Planning (PDP) is a career developmentprocess, distinct from performance management process. It provides a platformto members to discuss their career aspirations, identify their strengths and developmentareas and work towards enhancing individual competence. The process alsohelps in creating a Talent Pipeline and Succession Plan for key roles in theorganization.
Leadership Development: Marico invests in leadership development at front line,middle and senior leadership levels. Multiple development options areleveraged such as job rotation, classroom training, coaching and attendingmanagement development programmes at reputed institutes like Indian Schoolof Business to address specific individual development needs.
This year as part of Maricos signature leadership development program, LEADTalent (Lead, Encourage & Develop Talent) Marico Leaders became teachers and conductedsessions on how to become better people leaders for the Managers in their teams. 17interactive sessions were conducted by different leaders covering more than 300 Managers.
A new programme was launched under LEAD Talent to equip first time managers to Lead,Encourage And Develop Talent. The programme focuses on enabling first time managers totransition from individual contributors to people leaders by orienting them to their newroles and teaching them skills on delegation and coaching. The concept of Marico Leadersas Teachers has also been leveraged for this program with Marico leaders taking session onthe role of the leader in developing team members and living Marico values.
Overall, the employee relations throughout the year were supportive of businessperformance. As on March 31, 2014, the employee strength of Marico Limited was 1,938.
For other corporate developments, refer to the Directors Report.
Marico has positioned itself, strategically, in the Developing and Emerging (D & E)markets of Asia and Africa. Most of these markets have large populations with growingGDPs where affluence is expected to continue to rise and segments where Maricoparticipates hair care, body care, skin care and health foods are under-penetrated. TheCompany believes that in D & E markets, focus on the long term is crucial. Long termsuccess can be ensured only through stronger brands that enjoy loyal consumer franchises.The Company has therefore chosen to prioritize expansion of consumer franchise overexpansion of margins.
The unified Domestic and International FMCG business will aim at leveraging thesynergies in portfolio unlocking, efficiencies in supply chain and talent mobilization inthe medium term.
Here is a broad outline of Maricos strategies and the expected outcome for itsvarious businesses:
The Company will continue to report gradual recovery in volume growths to the mediumterm outlook.
The growth momentum in Rural and Middle
India will continue to be ahead of Urban. Moreover, the Company is likely toinvest significantly behind distribution which could give immediate gains.
Immediate future could see volume growth rates of 7% to 8%. This is expected to improvegoing forward from early/mid FY15. With the price increases already in market place theoverall top line growth could still be well over 15%.
In the short term the margins will be impacted by the unprecedented rise in copraprices in recent months. The Company has chosen not to pass on the entire input cost pushin order to continue the process of conversion from loose oil.
In the immediate term, Operating margin will face compression. However over the mediumterm, margin of about 17% to 18% (without corporate overheads) is sustainable. The Youthbrands portfolio is expected to grow by about 20% to 25%. However in the immediate term,the growth rates are likely to be around 15-20%.
Organic top line growth in the region of 15% to 20% in constant currency.
Operating margins expected to be sustained at around 14%.
Growth potential in the core markets of Bangladesh, Vietnam and Egypt intact and willcontinue to drive growth.
Expansion in adjacent markets such as Pakistan, Cambodia, Sri Lanka, North Africa. GCCregion likely to come back on track from FY15 onwards.
The Company will focus on deriving synergies as a result of the combination of Domesticand International FMCG businesses.
Product platforms will be leveraged across geographies and scale is expected to improvecost structures.
Top line growth in the region of 15% to 20% in the medium term with an operating marginin the band of 14% to 15%.
Market growth initiatives in core categories and markets and expansion into adjacentcategories and markets will be supported by investments in ASP in the region of 11-12% ofsales.
The Company will focus on building capabilities to set it up for growth in the longrun.
Significant portion of the gains from the value transformation exercise in India andoverseas will be ploughed back to fund growth and innovation.
The Company will continue to invest in increasing its direct rural reach and Go ToMarket transformation initiatives.
The Company will continue to engage in sustainability initiatives to enhance value ofall its stakeholders.
On behalf of the Board of Directors,
Date: April 30, 2014.