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This discussion covers the financial results and other developments for the year ended March 31, 2019 in respect of Marico Consolidated comprising its domesticand international business. The Consolidated entity has been referred to as Marico or Group or Company in this discussion.
Some statements in this discussion describing projections, estimates, expectations or outlook may be forward looking. Actual results may however differ materially from those stated, on account of various factors such as changes in government regulations, tax regimes, economic developments, exchange rate and interest rate movements among other macro economic factors, competitive environment, product demand and supply constraints within India and the countries within which the Group conducts its business.
Update on Macro Economic Indicators India
INDIA: GDP GROWTH (%)
In FY19, economic growth in India slowed to 7.0% (according to preliminary official estimates) as the expansion in agriculture and services slipped, even though industry and investment strengthened. The non-banking financial sector, which has played a vital role in meeting credit needs, has been under stress since a default by a large player, thereby tightening financial conditions and raising the cost of capital. On the demand side, private consumption was the main driver of growth inFY19. It grew by8.3%, the highest rate in seven years. Consumption is likely to have received impetus from reduced GST rates across a wide range of goods and services during the previous year and a cut in key monetary policy rates. Government consumption slowed, as expected, because of tightened finances. Gross fixed capital formation grew by a robust 10% in FY19, despite coming off a high base.
The government fell marginally short of its fiscal deficit target for FY19, the deficitfinallyequaling3.4% of GDP, compared to3.3% target. The central government has put fiscal consolidation on hold in FY20 by targeting a deficit equal to3.4% of GDP, close to the FY19 outcome, and higher than the earliertargetof3.1% of GDP.
The Indian rupee depreciated by 7.2% against the US dollar, reflecting the widening current account deficit and tepid foreign investment flows. It depreciated by about 3% in real effective terms. For ex reserve holdings declined by $22 Billion to $398 Billion in FY19.
Headline retail inflation averaged 3.5%, the lowest since a new metric was introduced in 2011. Much of the decline can be explained by muted food prices, which occupy 46% of the consumer price basket, as their average annual increase in FY19 was only 0.7%. By contrast, core inflation remained elevated at5.6% on price increases for housing, education and recreation services, and health care. Fuel inflation also remained strong on account of both higher global oil prices and Indian rupee depreciation.
India has improved its ranking in the World Banks Ease of Doing Business index by 23 spots and is now ranked 77th among 190 countries as per the 2019 edition of the report, making it the only country to rank among the top 10 improvers for the second consecutive year.
Startups in the country have been able to create an estimated 40,000 new jobs over the year, taking the total jobs in the start-up ecosystem to 1.6-1.7 lakh, in addition to another 4-5 lakh indirect jobs estimated to have been created.
India has seen an addition of over 1,200 startups in 2018, strengthening its position as the third largest startup ecosystem across the world, only behind US and UK. This takes the total number of technology startups to nearly 7,700, according to the NASSCOM Startup Report.
Inflation, remaining largely benign in FY19, is expected to inch upin FY20. Food inflation is likely to experience a mild up tick as some of the increase in procurement prices passes on to retail prices. Any increase in input costs such as wages and fertilisers could also push upfood prices. Mistimed or misdirected rainfall could damage harvests and stoke food inflation. Average global oil prices are expected to be 13% lowerin 2019 than that of last year. However, retail prices for deregulated fuels such as gasoline and diesel are unlikely to decline by this much because the government is likely to raise taxes on them to boost revenue, as it has done in the past. Core inflation is expected to persist at current rates as proposed budget measures to raise disposable income would bolster aggregate demand.
The medium term forecasts for growth and consumption in the Indian economy are promising. Steps to alleviate agriculture distress such as incomes up port to farmers and strong hikes to procurement prices for food grains are expected to bolster rural demand. The implementation of farmer income support
Will face some start-up challenges because it demands accurately linking land records with farmers bank accounts.
In urban areas, consumption demand is expected to receive a boost from interest rate cuts, continued low prices for food, and declining fuel prices. The central banks index of consumer confidence in March 2019 reached its highest reading in nearly 2 years. Current forecasts point to a normal monsoon, suggesting healthy growth in agriculture, helped by a low base in FY18 and steps to improve agricultural productivity.
In sum, growth isforecasttopickupmodestlyto7.2%in FY20 on revived rural consumption, continued growth in private investment in response to improved bank and corporate balance sheets, more competitive domestic firms and products under the GST, and less drag from net exports. Growth is expected to inch up further to 7.3% in FY21 on dividends reaped from recent reforms to improve the business climate, strengthen banks, and alleviate agricultural distress.
Continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economys growth prospects. This should be supported by strengthening goods and services tax compliance and further reducing subsidies. Important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of non-performing assets under a simplified bankruptcy framework. These efforts should be reinforced by enhancing governance of public sector banks. Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the countrys large demographic dividend; efforts should also be enhanced on land reform to facilitate and expedite infrastructure development.
Bangladesh, one of the most densely populated economies in the world, has continued making impressive strides in achieving social development goals for its 167 Million citizens. The resilience of the countrys economy has been commendable. GDP growth accelerated to 7.9% in fiscal year 2018 (FY18, ended June 30, 2018) from 7.3% in the previous year, as rising growth in total demand found support in higher consumption, investment, and exports. Continued political calm, improved power supply, and higher growth in private sector credit facilitated the fastest economic expansion in Bangladesh since 1974.
As per Asian Development Banks 2019 Outlook, GDP growth is expected to edge up to 8.0% in FY19 on robust private consumption aided by continued recovery in remittances. Public investment will remain strong as the government continues to expedite the implementation of large infrastructure projects and other large projects receiving overseas support. Private investment is expected to rise, supported by measures to increase private sector credit, reform initiatives to improve the ease of doing business, and plans to make several hundred industrial plots available in special economic zones. The current account deficit is forecast to shrink, and inflation to stay in check. However, high non-performing loans, low Profitability, weak governance, operational inefficiencies, inadequate internal risk management and an ineffective legal framework have cast a shadow on the health of the banking and financial sector. For higher investment and growth to sustain, sound economic policy must be implemented to mitigate underperformance of the financial sector.
In the long-term, Bangladesh promises substantial potential in terms of socio-economic growth. A developing economy with a young demographic profile provides the perfect consumer base for the FMCG sector to flourish.
The Vietnamese economy experienced another year of strong growth as it accelerated from 6.8% in 2017 to 7.1% in 2018, the highest in 11 years. Solid growth in exports of goods and services and continued strength in domestic demand underpinned last years expansion. Private consumption, the largest component of GDP, accounted for most of GDP growth last year.
As per Asian Development Banks 2019 Outlook, with growth in the global economy and world trade forecast to slow, growth in Vietnam is fore cast to moderate but remain strong at 6.8% in 2019 and 6.7% in 2020. Growth will continue to be broad-based, aided by export-oriented manufacturing, inward FDI, and sustained domestic demand. The outlook for private consumption remains robust as households enjoy rising incomes and stable inflation. Inflation is expected to continue to average3.5% in 2019 but accelerate to3.8% in 2020. The current account surplus is expected to narrow to theequivalentof2.5% of GDP this year and 2.0% in 2020 as exports decelerate under softening global demand while imports continue to rise due to robust domestic consumption and investment.
Vietnams medium-term outlook is broadly favourable, and downside risks are tied to weak external demand, shifting trade patterns, global financial volatility, and incomplete banking and state-owned enterprise (SOE) reforms. On the upside, Vietnam is strongly positioned to benefit from numerous free trade agreements that are coming into force in the near term. Vietnam is a signatory tol2 free trade agreements that integrate the economy in global value chains (GVCs).
Myanmar, defined as a lower-middle income economy by the World Bank, is one of the fastest growing economies in the East Asia and Pacific region and globally. Despite stronger exports, weaker domestic demand caused GDP growth to slow from 6.8% in fiscal year2017 (FY17, ended March 31,2018) to 6.2%yearon year in the transitional fiscal year 2018 (TFY2018, from April 1, 2018 to 30 September 2018). Domestic consumption was likely weakened by slowing income growth and higher inflation. Even as growth moderated, higher international oil prices and by at depreciation against the US dollar fueled inflation at 7.1% year on year in TFY2018, up from 4.0% in FY17.
As per Asian Development Banks 2019 Outlook, GDP growth is fore casted higherat6.6%yearonyearin FY19 (a full year ending 30 September2019) and 6.8% in FY20. Growth is projected to pick up in the near term on an expected turnaround in tourism-related businesses and foreign direct investment. Inflation will ease this year and accelerate next year, and the current account will widen in both years. Expediting economic reform promises to sustain robust growth over the medium term.
Middle East and North Africa (MENA)
Growth in the Middle East and North Africa (MENA) region is estimated to have improved to 1.7% in 2018, rebounding from a sharp deceleration a year earlier driven by oil production cuts in oil exporters and fiscal tightening. Growth among oil importers has picked up in the past two years and continues to garner positive momentum. Growth in oil exporters is also estimated to have recovered further in 2018. Resilient domestic dem and policy reforms are helping the regions transition away from dependence on commodity exports and the public sector.
In the Gulf Cooperation Council (GCC), increased oil production and prices have eased the pressure for fiscal consolidation, enabled higher public spending, and supported higher current account balances. Non-oil sector activity in the GCC has largely been stable.
In Egypt, tourism and natural gas activity have continued to show strength. Its unemployment rate has generally fallen, and policy reforms have contributed to an upgrade of its sovereign rating in August 2018. Fiscal adjustments in Egypt have also been steadily progressing.
Inflation is generally contained across the rest of the MENA region, averaging less than 3% in the GCC, and rising moderately in smaller oil importers. Headline inflation in Egypt remains near its end- 2018 target level ofl3%, despite edging up recently. Core inflation has been contained and the central bank has conducted two policy rate cuts in 2018, despite tighter external financing conditions.
As per World Bank Groups flagship report, Global Economic Prospects, GDP growth in MENA is projected to rise marginally to 1.9% in 2019 and pick up to 2.7% later in the forecast horizon. Both oil exporters and oil importers will show steady growth improvement over the forecast period. Despite the head winds from a less favourable international economic environment, which is expected to be marked by slower global trade growth and tighter external financing conditions, domestic factorsin particular, policy reforms continue to bolster growth in the region.
South Africa, ranked as an upper-middle-income economy by the World Bank, is the second largest economy in Africa.
South Africas economy emerged from a technical recession in the second halfof2018, in part due to improved activity in the agricultural and manufacturing sectors. However, growth remains subdued at0.8% in 2018, as challenges in the mining sector and weak construction activity are compounded by policy uncertainty and low business confidence. Inflation stayed within the 3 to 6% target range. Against this backdrop, the South African government announced measures to support the economy through reprioritised spending and structural reforms to improve the business environment and infrastructure delivery.
As per the International Monetary Funds (IMF) World Economic Outlook, published in April 2019, growth in South Africa is expected to marginally improve to 1.2% in 2019 andl.5%in 2020. High unemployment and slow growth in household credit extension are expected to constrain domestic demand in 2019, while fiscal consolidation limits government spending. Higher growth in 2020 reflects the expectation that the governments structural reform agenda will gradually gather speed, helping to boost investment growth, as policy uncertainty recedes and investor sentiment improves. In South Africa, growth is projected to stabilize at 1%% over the medium term as structural bottlenecks continue to weigh on investment and productivity, and metal export prices are expected to remain subdued.
Fast Moving Consumer Goods (FMCG) Sector in India
India is currently the worlds sixth largest economy and expected to remain the worlds fastest-growing major economy over the next decade with annual gross domestic product (GDP) growth rate of7% plus. Domestic consumption, which powers 60% of the GDP today, is expected to grow into a $6 Trillion opportunity by 2030. This consumption growth will be supported byal.4 Billion strong population that is younger than that of any other major economy. Household savings have historically been high as thrifty and cautious Indian families put away more than a fifth of their incomes for a rainy day. This buffer provides support to domestic consumption expenditure even through challenging cycles in economic activity.
With current market size ofabout$60 Billion, FMCG is the 4th largest sector in the Indian economy. There are three main segments in thesector-50% is accounted for by Household and Personal Care, 31% by Healthcare (includes OTC products and ethicals) and the remaining 19% by Food and Beverages.
Over65% of lndias population stays in rural areas and they spend -50% of their total spending on FMCG products. Hence, rural market, accounting for-45% of overall revenue of the FMCG sector, is one of the key contributors to Indias FMCG growth story. Being largely dependent on agriculture and allied activities, the factors affecting agricultural income such as monsoon and Minimum Support Prices (MSP) of crops are critical for the growth in rural consumption demand. Various government reforms such as increasing MSP of crops and direct benefit transfer targeted towards transferring the governmental subsidies and payments directly into beneficiary bank accounts are helping plug the systemic leakages and increased farmer incomes. While demonetisation and GST negatively affected rural demand, FMCG companies have changed their distribution model and working on increasing their direct reach. Demand for quality goods and services have been going up in rural areas of lndia, on the back of improved distribution channels of manufacturing and FMCG companies. Companies have also started launching smaller SKUs or price point packs, which not only reduces the immediate burden on customers but also allows companies to expand their product portfolio and upgrade the customers to from loose to branded products.
FMCG operates through two primary sales channels - general trade and modern trade (consists of supermarket, hypermarkets, etc. and includes E-Commerce). Within modern trade, E-commerce has become more popular in recent past. While general trade comprising kirana stores, being the largest sales channel for overall FMCG retail sales, continues to dominate the share of sales, growth in sales through modern trade, especially e-commerce, is significantly out pacing the growth of FMCG products in general trade. Post the announcement of demonetisation and implementation of GST, overall modern trade is expected to continue growing faster with e-commerce being the major driver of this growth. Faster growth in internet user base, broadband data consumption, smart phone penetration and digital transactions are key drivers of this growth. According to Nielsen, growing consumer trust and confidence in online buying has helped e-commerce platforms expand their share in Indias total FMCG retail sales by as much as three times. Nielsen added that the fresh and packaged groceries have seen significant upswing in online purchases. Nielsen expects e-commerces contribution to total FMCG sales to rise from 1.3% currently to 11% by 2030.
Digitisation in India should further support the trend. India registered a healthy 30%y-o-ygrowth in terms of cities and towns transacting through e-commerce, primarily driven by rural India. A number of factors, such as improved internet connectivity, rural mobile phone access and widespread television coverage has helped companies educate consumers better about products and helped FMCG companies grow their revenues.
The FMCG sector is highly fragmented and about half of it is dominated by the un organised sector. On the other hand, with the share of unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with increased level of brand consciousness, also augmented by the growth in modern retail. 100% Foreign Direct Investment (FDI) in food processing and single-brand retail and 51% in multi-brand retail has provided high visibility for FMCG brands in organised retail markets, bolstering consumer spending and encouraging more product launches.
According to Nielsen, modern trade and e-commerce has helped bigger FMCG players in expanding their distribution and sales. Consumers are now looking for branded products. Smaller towns and villages will fuel the growth of FMCG sales in the coming year. In the last two years, smaller towns with less than a lakh of population contributed about 58% of the sales of FMCG through modern trade stores such as Food Bazaar, Star Bazaar, D-Mart, Reliance Fresh, EasyDay, among several smaller regional supermarket players, big organised neighbour hood stores and pharma chains such as Apollo Pharmacy and Medplus.
India is reporting an annual population growth of l.l% and is expected to emerge as the most populous country in the World by 2024. Nearly half of lndias population is under the age of 25 and two-thirds are less than 35. India is expected to have the worlds largest work force by2027,with a Billion people aged between 15 and 64. This indicates that the growth in non- discretionary consumer demand, such as food, healthcare, household and personal care products, is likely to sustain in the long-term. In addition, India is also witnessing strong growth in per capital income, leading to an increase in affluent population and rise in disposable income in general, which in turn is resulting in a rise in discretionary spending.
The FMCG sector in India is likely to grow steadily owing to structural drivers like huge population, rising affluence level and disposable income, low penetration level and per capita consumption, remaining intact. Rising demand for premium products and faster growth in sales through modern trade are likely to bring incremental growth. Growing awareness, easier access, and changing lifestyles are the key growth drivers for the consumer market. Lastly, the focus on agriculture, MSMEs, education, healthcare, infrastructure and employments the interim Budget and upcoming full-year Union Budgetis expected to positively impact the FMCG sector.
The Marico Growth Story
Mari coachieved revenue from operations of ?7,334 Crore ($1.05 Billion) during FY19, a growth ofl6% over the previous year. Volume growth for the year was 8%. The value growth was led by price increases taken in core portfolios of the domestic business to counter significant input cost push and favourable forex impact on translation of overseas revenues. The business delivered an operating margin of 17.5% and operating bottom line of ?930 Crore (excluding tax adjustment pertaining to earlier years in Q4FY19), a growth ofl4% over the last year. The reported bottom line was ?1,118 Crore.
Since inception, Maricos Revenues and PAT have grown at a compounded annual growth rateofl6% and 24% respectively. This places the Company in the top quartile in this sector. The focus on delivering sustainable business and earnings growth has so far resulted in a healthy shareholder return of25% CAGRs ince listing in 1996.
Domestic Business: Marico India
Marico India, the domestic business, achieved a turn over of ?5,756 Crore ($822 Million) in FY19, a growth of l6% over last year. Volume growth for the year was 8%, in line with the medium term aspiration. The operating margin for the India business was at 19.6% (before corporate allocations) versus 21.3% in FY18. Profitability for the year was subdued by gross margin contraction in the first half due to an inflationary cost environment, which was only partly contained by the price hikes taken in respective portfolios.
Coconut Oil (46% of lndia business)
Parachutes rigid portfolio (packs in blue bottles) recorded a volume growth of8% in FY19. The brand visibly led the growth in the category during the year, as its equity further strengthened through the year. The non-focused part of the portfolio (comprising Nihar Naturals, Oil of Malabar& pouch packs in Parachute) declined 5% in volume terms during the year. During the year under review, the volume market share of the Coconut Oil franchise (includes Nihar Naturals and Oil of Malabar) roseto59.4% (March 2019 MAT).
Given Parachutes market share in rural is lower than in urban, a pickup in rural spending presents the Company with an opportunity to improve its rural market share over the medium term. Of the total coconut oil market, approximately 30-35% in volume terms is in loose form. This component provides head room for growth to branded players. Parachute, being the market leader in the circa 5500 Crore* branded coconut oil market, is well placed to capture a significant share of this growth potential on a sustainable basis.
The Company operates in a band of gross margin per unit and will take judicious pricing decisions to maintain a sweet spot between volume growth and margins. The Company would continue to exercise a bias for franchise expansion and market share gains as long as margins remain within a band. Towards that end, the Company will continue to invest behind brand building and tactical inputs to remain competitive.
Owing to the above, the Company aims to deliver5-7% volume CAGRover the medium term.
Saffola: Super Premium Refined Edible Oils and Healthy Foods (19% of lndia business)
The Saffola refined edible oils franchise grew 8% in volume terms during FY19. The franchise appeared to respond well to the focused marketing initiatives taken this year towards re-establishing the superior product proposition and deploying tactical pricing inputs. Growth was led by the new-age channels of Modern Trade and E-Commerce. However, in the near term, we remain cautiously optimistic on the franchise.
There was a considerable step upin media spends behind the brand, accompanied by a new campaign for the mainstay variant, Saffola Gold. Launched in Jan19, the campaign
*Based on management estimates messaging Saffola wala khana succinctly communicated its heart health credentials.
Consequently, the brand furthered its volume market share in the super premium refined edible oils segment to -73% volume market share (March 2019 MAT). The growing consumertr end towards heal their culinary choices and the strong brand equity continue to lend confidence in the medium term potential of the franchise.
The Healthy Foods franchise posted value growth of32% in FY19.
The value market share of Saffola Masala Oats strengthened to -72% in the flavoured oats category (March 2019 MAT), accompanied by a significant increase in overall penetration, especially in metro cities of Mumbai and New Delhi. The brand also gained significant traction in Modern Trade and E-Commerce. During the year, the Company introduced Saffola Masala Oats with Multigrain Crunchies, a first-of-its- kind innovation in the category, and also launched three new variants- Mumbai Pav Bhaji, Lemony Twist & Mint Chutney.
We continue to expand the prototyping of Saffola Masala Oats vending machines in corporate offices, gyms and hospitals in Mumbai, Puneand New Delhi. We have placed more than 300 vending machines, reaching -200,000 consumers across 200 commercial establishments in these cities.
In response to the evolving consumer need forgourmet dietary options with super food nutrition for a slimmer and fitter life, the Company rolled out a range of healthy food and beverage products under the aegis of a new sub-brand, Saffola FITTIFY Gourmet. The range includes moringa green tea, green coffee instant beverage mixes, hi-protein meal soups, hi-protein slim meal-shakes and a power breakfast range. The brand will be focused on the Modern Tradeand E-Commerce channels.
The Company also expanded the Healthy Foods range under the brand Coco Soul, harnessing the benefits inherent in a coconut to provide food options that aids well-being in more ways than one. In addition to the Virgin Coconut Oil (available in natural and organic variants), the range now includes infused Virgin Coconut Oil, Coconut Sugar, Coconut Spread, Coconut Chips (available in four flavours), Peanut Coconut Butter and Almond Coconut Butter (available in crunchy and creamy versions).
With these significant additions to the portfolio, the Company aspires to grow the Healthy Foods into 450-500 Crore franchise over the next two to three years. We believe that growth inthis category will come through continuous innovation in product and packaging and the Company is taking definitive steps towards the same.
Leave-in Hair Nourishment (26% of India business)
The leave-in hair nourishment portfolio of the Company has two sub-segments:
i) value added hair oils and
ii) premium hair nourishment.
i. Value Added Hair Oils (25% of India business)
Value added hair oil brands registered a volume growth of7% during the year. Volume growth for the year was below the medium-term target due to multiple factors:
i) steep decline in CSD sales in Q2
ii) underperformance in the premium segment and
iii) clearing of channel inventory in Q4 prior to MRP decreases in select brands from April 2019. However, strong off take growth led the Company to consolidate its market leadership in the circa 8000 Crore with a volume shareof~34% and valueshareof~26%(March 2019 MAT).With the medium term potential intact, the Company is confident of reviving the double digit volume growth momentum in this franchise. The Company will also continue to focus on premiumisation and aim to grow its value share in the category ahead of volume share.
Nihar Naturals Shanti Badam Amla is the leader among all sub brands in volume sales in the Value Added Hair Oils category*. The brand extended its volume market leadership in the Amla Hair Oils category, gaining 202 bps in volume share (MAT March 2019) coupled with an increase of250 bps in household penetration levels during the year. The renewed advertising campaign and the association of the brand with a societal purpose augmented the brand image. The Company also initiated its flagship micro marketing activity, School Contact Program, in about 2000villages across the states of Uttar Pradesh, Bihar, Madhya Pradesh & Chhattisgarh. By consistently increasing the number of rural consumers the brand touches, its market share is expected to strengthen further.
Nihar Naturals Sarson Kesh Tel, witnessed good traction through the year with an exit volume market share ofll% in the perfumed mustard oil category. The Company will continue to invest behind the brand as it taps into the sizeable unorganised mustard oil market.
Parachute Advansed Aloe Vera Enriched Coconut Hair Oil now scaled up to a pan-India level, continued its accelerated growth trend. The brand garnered sizeable market share in its key markets and we will continue to aggressively invest for growth.
During the year, the Company rolled out a fresh campaign for Parachute Advansed Ayurvedic Hair Oil, featuring
* Based on the volume share data with in value added hair oils as defined by Marico (excluding coconut &mustard oil from Kantar World Panels household purchase panel for the periodApr18to Mar19inAlllndia Urban &Rural.
Consumer test imonials with their photographs in the centre of the product packaging. Given the category relies on recommendations based on productefficacy, we expect this initiative to further augment the brand image. The brand is present in southern states ofAndhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana and continues to hold -30% marketshare in the region.
During theyear, the Company launched Nihar Naturals ExtraCare Hair Fall Control Oil, an innovative product which brings alive the age-old recipe ofsoaking seeds in oil. Thelight hair oil comes with a unique bottle cap, which carries a potent mix ofActiv-seeds which are known to reduce hair-fall. The recipe involves soaking Til (Sesame), Methi (Fenugreek), Sarson (Mustard), Kalonji (Nigella) and Lauki (Bottle Gourd) seeds in theoil. This hassle-free technique makes it possibleto enjoythe benefitofthis age-old method every day. The product was launched in West Bengal and gained some traction amidst ahigh frequency 360 degree media campaign covering TV, Print and Digital.Wealso covered various consumerand trade touch points on the ground.
To broaden ourplayin the Light Hair Oils category, Hair & Care Dry Fruit Oil was launched in Rajasthan and Maharashtra.This latest avatar under the Hair&Care franchisecombined the goodness ofAlmond and Walnut Oils and is enriched with Vitamin E and B5.
The Company also stepped up participation in the bottom of the pyramid segment through Nihar Shanti Jasmine and Nihar Naturals Gold, in addition todriving premiumisation and scaling up new launches. We expect to drivedouble digitvolume growth in thefranchise overthe medium term on the backof these measures.
ii. Premium Hair Nourishment (1% of India business)
Premium Hair Nourishment grew by55% in FY19in value terms.
Livon Serums registered strong growth during theyear.
With a reach ofmore than 1 Lakh stores, sachets are emerging asakeypackin ensuring accessibilityand are generating more than 70% ofbrand trials. The brand continued to witness highergrowth in Modern Tradeand E-Commerce. lnQ2, the Company launched variants of Livon Serums specificallyformulatedforcommon hair careneeds-Livon Serums for Dry and Unruly Hair, Livon Serum Colour Protect and Livon Shake and Spray Serum.
Being the market leaderwith a volume share of~75% (March 2019 MAT) in the circa 150 Crore leave-in conditioners category, the Company continued to focus on innovation and consumerengagement to drive category growth.
In Ql, the Company also launched a new-age hair nourishment product range - Parachute Advansed Coconut Creme Oil Pre-Wash Hair Nourisher, Parachute Advansed Coconut Creme Intense Nourishment Shampoo and Parachute Advansed Coconut Serum
Oil to capture the pre-wash, in-wash and post wash hair nourishment needs ofconsumerswho usually neglect their hairhealth forwantoftime. The pre-wash hair nourisher (available in a cremeformat) is a blend of the goodness ofboth, coconut oil and coconut milk, providing the requisite hair nourishment in 30 minutes. This is accompanied by the shampoo and post wash serum to complete the haircare cycle. The rangewas initially launched in Bangalore, and then extended to Maharashtra and Modern Trade and e-commerce channels across India. The Companycontinues to invest behind the brand to create high impact awareness through multiple touchpoints, including mass media such as Print, Digital andOut ofHome aswell as generate trials through aggressive sampling of the product.
In Q2, the Company launched a first-of-its-kind botanical hair tonic undera fresh brand -True Roots, which tackles thecommon consumerproblem of premature hairgreying. The product offersaformulation ofApigenin (extracted from Chamomileflowers) as the key ingredient in addition to other herbs, which has been proven to increase the melanin (natural pigmentwhich lends thedarkcolourto hair) content in hair roots, therebydelaying thegreying ofhair. The productwas initially launched exclusively on Flipkart. Later, itwas extended to General Trade in Mumbai and Modern Trade in top eight cities, amidst an integrated digital media campaign strongly supported by print, outdoorand pointofsales visibility. Wewill continue to investaggressively behind the brand.
Male Grooming (3% oflndia business)
Male Grooming grew 22%in value terms during the year, led by healthy performance in hairgels and deodorants.
Set Wet Hair Gels grew in linewith aspirationsduring the year. The brand continued to register high offtakes on the backof its 56% value market share in the circa 350 Crore hair styling category. Set Wet Hair Waxes, also made available in an affordable price point pack (30), received healthyfeedbackfrom trade and consumers.
Set Wet fragrances had a steadyyear. The Companywill continue to expand thefootprint of Set Wet Go pocket perfumesprays (priced at 49), which is nowone of the leading players in the budget perfumery segment. To broaden its play in the budget perfumery space, the Company launched a premium Global Edition range of Set
Wet perfume sprays in two fragrances-Bali Bliss and Las Vegas Live. Wewill continue to innovate in this space in order to drive saliency.
The Company launched its first exclusively digital brand,
Set Wet Studio X, in May 2018, to introduce a premium range of mens grooming products, spanning seven product categories-Shampoo, Bodywash, Facewash, Wax, Pomade,
Hair & Beard Serum and Perfume. Post launch, the brand has shown encouraging results. In Q4, the Company also launched the Set Wet Studio X Charcoal male grooming range, with natural detox and deep cleansing properties of charcoal-which included shampoo, bodywash, peel-off face mask, face wash and face scrub in a price range of 249 to 399.
Parachute Advansed Men Hair Creams was seen gaining traction in the e-Commerce channel.The Company has planned focused initiatives to accelerate growth of this franchise.
Foray into Premium Skin Care targeting the masstige segment
During theyear, the Company introduced the Kaya Youth O2 range, marking its entry into the premium skincare space.
The range includes Day Cream, Face Wash, Face Wipes and Micellar Water. The Company aims to leverage the strong brand equityofKaya and the brand has been launched in General Trade in Mumbai, Modern Trade in the top 8 metros and e-commerceacross India. Within General Trade, the brand will also enable the Company to tap chemist and cosmetic outlets. The initial response has been encouraging with good acceptabilityof the range. The brand proposition ofboosting oxygen for youthful glowing skin has been created on an exciting and unique conceptof#SkinPranayam. The Company has an exciting innovation line-upforthe Brand.
In FY19, rural General Trade (32% oflndia business) grew 17%, while urban General Tradegrew 7%. Urban sales, including Modern Trade and e-Commerce, grew 18%, thereby matching rural growth. Owing to robustgrowth throughout theyear, the contribution ofModern Trade and e-commerce to the India businessjumped to 13% and 4% respectively. CSDsales (7% oflndia business) grew 9%.
Go-To-Market Transformation is one of the key pillars oflong-termgrowth for Marico. The Companytookthe following steps to further strengthen its capabilities:
To augmentsales capabilities, the Company has been investing behind analytics todrivedecision making.
The Company has alsoventured into predictive analytics, which predicts the churn likely to happen in its infrastructure overthe nextthree months, therebytaking proactive measures to retain the same.
The Companyalso rolled outatool called Infra Quotient to measure the health ofourinfrastructure across a comprehensive set ofparameters like quality, stability, capability, Commercial, Supply Chain, IT and Sales KPIs. We are now taking active steps to improve the Infra Quotient scores across the country.
The Company has also deployed a socio-economic clustering tool which generates SKU recommendations to enable higherassortment selling in outlets.
The Company is building tools to ensure best-in-class merchandising on the ground and enhance its competitive advantage. The merchandising platform enables the Company to trackstock levels ofkeyvalue items, new products and competitor activity and thereby, fine-tune the replenishment strategy in traditional trade as well as modern trade stores. The tools are equipped with integrated image recognition analytics which allows auditing ofimages on a real-time basis to ensure compliancewith category merchandising benchmarks.
Having identified chemist & cosmetic channels as the channels suited to drive incremental growth forour new-age portfolio,we rolled outaspecialized Go-to- Market initiativeforthesechannels in top metro cities.
Withafocus on expanding direct reach in rural though the ongoing program - Vikas Daud, we have identified feasiblevan routes with higherefficiencythrough the use ofgeo tags mapped to each route. Such optimisation enables the Company to drive a sustainable increase in the rural footprint, prune the underperforming routes and progressively improve manpowerallocation across outlets.
Pursuant to the focus on increasing its rural footprint, the Company has expanded its direct reach to cover almostevery town with a population of5,000 and above. The Company has evolved into higherordersupply chain models for key Modern Trade customers with direct-from-factory supplies, thereby driving further efficiencies in business through this channel.
Summing up the story of India Business in FY19
The India business registered a healthyvolume growth of 8% in FY19. Sustained offtake growth coupled with market sharegains in morethan 90% of the portfolio on a MAT basis affirmed the underlying strength of the franchise.
All portfolios,otherthanValueAdded HairOils,grewin line with the Companys medium term objective. Theyearwas alsocharacterised byan unprecedented level ofnew products introductions from the Company. The Company made importantstrides towards building futureengines ofgrowth and driving premiumisation across its portfolio. With core portfolios poised to deliverstablegrowth overthe medium term, we expect a significant shift in new product contribution to ramp it up further, especially in the contextofnewage channels ofModern Tradeand e-Commerceflourishing.
Positiveconsumersentiment inrural was one of the remarkablefeatures ofthisyear. Thevisible political intent to structurally alleviate agrarian distress, improve rural infrastructure and increasedisposable income levels in the hands of the rural consumerbodes wellforconsumption over the medium term, whilefood inflation and monsoons do not spring any negative surprise.
International FMCG Business: Marico International
The International business contributed to 22% of the Group turnoverin FY19.The business reported a 9% constant currency growth (volumegrowth of8%) during theyear. The operating margin (before corporate allocations) was at 19.1% in FY19 against 16.6% in FY18. The improvement in margins was led by gross margin expansion in key markets.
Bangladesh (46% of the International Business)
The business in Bangladesh grew by 12% in FY19 in constant currency terms.
Parachute Coconut Oil grew by 4% in constant currency terms, while maintaining the leadership position with -86% volume market share. With the category having matured in this market, the Company should still be able to grow this franchise in single-digits on a constant currency basis over the medium-term on the backof its dominant position, distributive strength and consumption growth.
The non-Coconutoil portfolio in Bangladesh grew by33% in FY19 in constantcurrencyterms.With Value added HairOils spearheading this growth, the Company has attained value market leadership in this category. Having introduced Nihar Naturals Coconut Enriched HairOil& Parachute Advansed AloeVera thisyear, we expectabroaderVAHO portfolio to supplement growth inthis category. Saffola Edible Oils and Set Wet Gels also gained traction through the year. We expanded ourskin care portfoliowith the launch of Parachute Advansed Petroleum Jelly and newervariants of Parachute Advansed Body Lotion - Butter Smooth & Soft Touch. We also introduced a baby skin care range under Parachute Just for Baby comprising babywash, baby lotion and babyoil.
The non-Coconut Oil portfolio in Bangladesh nowconstitutes nearly30% of the total business in Bangladesh. The Company will leverage its strong distribution networkand learnings from the India market to quicklyscaleup its new product introductions in Bangladesh. With this, the contribution of the non-coconut oil portfolio is likely to exceed 35% over nexttwo years.
Owing to the above, the Company is confident ofdelivering double-digitconstantcurrencygrowth in this geography overthe medium term.
South East Asia (26% of the International Business)
The South EastAsia business (mainlyVietnam and Myanmar) grew by 8% in FY19 in constantcurrencyterms.
Vietnam posted growth oflO% in FY19 inconstantcurrency terms. Growth was led by the Home and Personal Care (HPC) business as theflagship brand,X-Men, maintained its leadership position in the segment. Newcommunication for X- Men Shampoowith the themeReal Men Take Riskswas launched injuly 2018towards making the brand relevant foryoung unisex users. Further, todiversifythe portfolio, the business has launched a female grooming range undera new brand Sedure during theyear. The range offers shower gels, EDTdeodorantsand roll-on deodorantswith alluring fragrancesforthe confidentand independentwoman oftoday.
The Foods portfolio had a sluggish year. However, the Company is rolling out plans to revitalise growth in this portfoliowith innovation and participation in broadercategory play. Overall, we expect to deliver double-digit constant currency growth inthis geography over the medium term.
Myanmar was a bit subdued this year. However, given the potential in this market, the Company will continue to invest forgrowth in this market.
Middle Eastand North Africa (MENA) (15% of the International Business)
The business posted 12%growth in FY19 on the backof double-digitconstantcurrencygrowth in both Middle East and Egypt businesses. TheMiddle East business grew by 12% and Egypt grew byl3%inFY19in constant currency terms.
Despite the healthygrowth,thevolatile macro environment keeps us cautiously optimistic about the medium term outlookof these markets.
South Africa (8% of the International Business)
In FY19, the business grew3% in constantcurrencyterms. In the context of the macro headwinds in the region, we expect this business to tread along inasimilar pattern over the medium term.
New Country Development & Exports (5% of the International Business)
With expansion in adjacent markets such as Sri Lanka, Nepal, Bhutan, exports to diaspora and other markets, this business generated revenues of~$ll Million thisyear. This business had a muted yearin constantcurrency terms.The Company remains positiveon thefuture prospects ofthis business.
Summing up the story of International Business in FY19
FY19 wasayearofstabilisation forthe International business with key markets building a predictable healthy constant
currencygrowth trajectory. Bangladesh,Vietnam andMENA grewin doubledigits.WhileMENAregion hadagoodyear, we remain cautiouslyoptimisticaboutthis region. Growth in newcountry markets such as Nepal and Myanmarremains promising.South Africa is expected to deliver low single digit constantcurrencygrowths in thecontextoftough macros. The International businessalsodelivered healthyoperating margin expansion on the backon lowerinputcosts in key markets.
Overall,the strategy offocusing on strengthening the core, diversifying the product portfolio, brand building and investing behind capabilities has started showing positive results and should help accelerategrowth in coming years.
Consolidated Results of Operations - Overview
During theyearended 31st March 2019 (FY19), Marico registered consolidated revenuefrom operations of ?7,334 Crore, a growth ofl6% overthe previous year. The volumegrowth underlying this revenue growth was 8%. Profit aftertax (PAT) was ?930 Crore (excluding the taxadjustment forearlieryears in Q4FY19), up 14% overthe lastyear. However, the reported bottom linefor FY19 was ?1,118 Crore.
Our total income consists of the following
1. Revenuefrom Operations comprises Salesfrom Consumer Products including coconutoil, value added hairoils, premium refined edibleoils, anti-lice treatments, fabric care, functional and other processed foods, hair creams&gels, hairserums, shampoos, showergels, hair relaxers & straighteners, deodorants and othersimilar consumerproducts, by-products, scrap sales and certain otheroperating income.
2. Other Income primarily includes Profits on sale of investments, dividends, interest, GST budgetary support and miscellaneous income.
The following table states the details of income from sales and services for FY18 and FY19:
|Particulars (in Crore)||FY19||FY18|
There has been 16%growth in Revenue from Operations on accountofl6% revenue growth both in Marico India and Marico International.
The following table sets the expenses and certain other profit and loss account line items for the years FY18 and FY19:
For the year ended March 31,2019
For the year ended March 31, 2018
|(in Crore)||% ofRevenue||(in Crore)||% ofRevenue|
|Revenue from Operations||7,334||6,333|
|Cost of Materials||4,017||54.8||3,359||53.0|
|Advertisement and Sales Promotion||659||9.0||588||9.3|
|Depreciation and Amortisation||96||1.3||89||1.4|
|Tax (excl. tax adjustments for earlier years)||316||4.3||290||4.6|
|Profit after Tax||930||12.7||814||12.9|
Cost of Materials
Cost of materials comprises consumption of raw material, packing material, semi-finished goods, purchase of finished goods for re-sale, excise duty and increase or decrease in the stocks of finished goods, by-products and work in progress.
In FY19, average domestic copra prices were down 2%, while average prices of each of the other key inputs were up 10-15%. While copra prices softened in the second half, cost of materials as a % of sales was higher due to consumption of peak cost inventory of copra from the previous year in the first half of this year coupled with inflation in other key inputs.
During the year under review, employee cost grew by 10% over FY18 largely on account of annual salary revisions.
Advertisement and Sales Promotion (ASP)
ASP spends to sales ratio during the year was 9.0%.
ASP spends were up 12% over FY18. The Company expects to step up these spends to 10% of Sales over the medium term.
Capital Expenditure and Depreciation
For the full year, depreciation was at 96 Crore ($13.7 Million) as compared to 89 Crore ($13.8 Million) in FY18. The capital expenditure in FY20 is likely to be around 125-150 Crore.
(a) The other expenses consist of expenses which are fixed in nature (about 1/3rd) and expenses which are variable in nature (about 2/3rd). Other expenses are likely to remain in the range of 12-14% of turnover in the medium term.
|Other Expenses (in Crore)||FY19||FY18||% variation|
Finance charges comprise interest on loans and other financial charges. For the full year, finance charges was at 24 crore ($3.4 Million) as compared to 16 crore ($2.5 Million) in FY18. This was on account of increase in working capital borrowings coupled with higher interest rates.
The Effective Tax Rate (ETR) for FY19 (excluding tax adjustment for earlier years) was 25.0%. In Q4FY19, there was a write-back of tax provisions amounting to ~188 Crore pursuant to a favourable resolution of tax proceedings pertaining to earlier years. The aforesaid write-back was one-off in nature.
ETR in FY20 is expected to be in line with the current year.
It should be noted that this tax rate is basis the accounting charge in the P&L account. The Company will continue to pay basis MAT and therefore from the cash flow point of view, there is no change. MAT credit as on March 31, 2019 stood at 182 Crore and is expected to be utilised by the Company in the coming years.
Given below is a snapshot of various capital efficiency ratios for Marico:
|Return on Capital Employed (ROCE)||41.1%||41.3%|
|Return on Net Worth (RONW)||33.6%||33.5%|
|Working Capital Ratios (Group)|
|- Debtors Turnover (Days)||21||17|
|- Inventory Turnover (Days)||73||80|
|- Net Working Capital (Days)||48||48|
|Debt: Equity (Group)||0.12||0.11|
|Finance Costs to Turnover (%) (Group)||0.3%||0.3%|
Note: Turnover Ratios calculated on the basis of average balances.
The ratios have continued to be healthy for the year.
The Companys dividend distribution policy is aimed at sharing its prosperitywith its shareholders subject to maintaining an adequate chestforliquidity and growth.
Keeping in mind steady increase in operating cash flows and in an endeavour to maximise the returns to its shareholders, the Company increased its dividend payout during the year to 475% as compared to 425% during FY18.The overall dividend payout ratiowas 76% of the consolidated Profit aftertax (excluding taxadjustmentforearlieryears). Subject to its fund requirements towards inorganic growth, working capital and capacity creation, the Companyshall endeavour to maintain a dividend payout ratio at levels witnessed in the last coupleofyears.
Talent&culture are among the key building blocks in shaping Marico into an organisation that is built to last. Over the courseof the lastyear, we have taken several initiatives in this direction, which are presented in the chapter Human Capital. The Company will continue to focus on the following strategic areas in orderto be able to leveragethe potential of its human capital:
Information Technology and Digital
Marico continued to progress on its roadmap ofusing digital, analytics and automation opportunities to delivera better and integrated experience to its consumers, associates and employees. Your Company increased the use ofDigital as a media platform significantly in the current year, with more brands having theirpresencethrough online, social and mobile media as well as through the use ofprogrammatic buying. Theshare ofDigital in thetotal mix has been in double digits in percentterms in the pasttwoyears. In addition, analytics and automation led initiatives have helped drive
consumerand customerexperience, boostsales growth and efficiency and improve employee engagement. Details ofsome of the latest technologies adopted by the Company during theyearare presented in the chapter Technology for Disruption.
Overthe medium term, Marico aspires to be an admired emerging marketMNCwith leadership in categories of leave-in hair nourishment, healthy foods, skin care and male grooming in a few chosen markets in South Asia, South East Asia, Middle Eastand North Africa and South Africa. Marico plans to meet this aspiration by seeking to win amongst consumers, trade and talent. As the Company scales up, it has to maintain a delicate balance between entrepreneurial way ofworking while continuing to strengthen governance and processes.The Companysfocus will beon creating winning brands, winning cultureand a winning talent pool to createavirtuous cycle ofgreattalentand an enabling culture driving innovation driven growth.
The India business delivered a volume growth of8% in FY19. For FY20 and beyond, the Company aspires to deliver 8-10% volumegrowth coupled with healthy marketshare gains, on the backofincreased investment in the core portfolio, aggressive new product launches, distribution expansion & judicious pricing. Copra prices aretrending downwards in the flush season as anticipated and are expected to stay benign unless monsoonsdisappoint. As cost pressures in the India business relatively ease, operating margins are expected to trend upwards, despite higher ask on the ad spends front. We would be comfortable with operating margins above 20% in the India business overthe medium term. Parachute Rigids had a strong 8% volume growth in FY19. Given the market construct and strong brand equity, the Company aims to growvolumes in the range of5-7% overthe medium term. ValueAdded Hair Oils fell short ofmedium term expectations with 7%volumegrowth during theyear. The Companyaims to drivedouble-digitvolumegrowth in this franchise on the backofgrowth in the core portfolio, the drive towards premiumisation, scale-up ofnew launches and active participation in bottom of the pyramid. Saffola Edible Oils volumes grew by 8% during theyear. Thefocused marketing initiatives appearto be graduallyyielding results butwe stay cautiously optimistic in the near term. We aim to deliver mid to high singledigitvolumegrowth overthe nextfewquarters in thisfranchise. In Healthy Foods, the Companywill continue to innovate and launch tasty and healthy dietary options for the consumer, thereby maintaining 20% plusvalue CAGR overthe medium term. In addition to Healthy Foods, we aim to build Premium Hair Nourishment, Male Grooming and Skin Care into growth engines of the future and expect to deliver value growth of20% plusvalue CAGRoverthe medium term in these portfolios.The Companywill also gradually create dedicated premium product offerings suited to Modern Trade and E-commerce channels to continuegrowing aggressively
in these channels.The Companys Go-To-Market (GTM) strategywill befocused on improving thewidth and depth of itsdistribution. Strategic initiatives in sales and supply chain will aim at ushering in efficiencies in selling and GTM. The Company is renewing its efforts towards enhancing its GTM capabilities in salons, pharmacy chains, cosmetics and specialtyfood outlets. KayaYouth 02, Saffola FITTIFY Gourmet and Coco Soul have been conscious attempts in this direction. The Company isfocusing on Digital initiatives in a big way to improve consumerengagement, drive sales through E-commerceforinternet-savvyconsumers and build DataAnalytics capabilities. Investment in Zed Lifestyle (who owns Beardo) is also likely to enhancethe capability in E-commerceand salons overthe medium-term. E-commerce now contributes -4% of the India business. With the Company steadily creating a portfolio suited to this channel and investing aggressively behind enhancing capabilities, we expect E-Commerce to contribute at Ieast5% of the India business by the end ofFY20.
Overthe lastfewyears, the Company has systematically invested in the core international markets to strengthen both the brands and the organisational capability to drivegrowth. The Company is confident that each of these markets is well-poised to capitaliseon the marketopportunities. The business in Bangladesh is likely to continue the momentum as the medium term macro prospects look promising. Therefore, the Companywill continueto invest in brand building, Go to Market transformation and diversify beyond Coconut Oil within its stated strategy. As a market leader, the Vietnam business will continue to invest in the male grooming category and excellence in sales and distribution systems. Towards portfoliodiversification, the business has already launched a female grooming range undera new brand Sedure. Myanmarand the rest ofSouth EastAsia are growth engines of thefuture. In theMENA region, the Company willfocus on getting the basics right byjudiciously investing behind brands and Go-to-Market initiatives. The South Africa business has been subdued by macroeconomic headwinds and resultant sluggishness in demand.Weare cautious on the near term outlookof the business, but expect to protect the corefranchiseofethnic haircare and health care over the medium term. The Companywill continue to invest in developing new countries and scale the business Profitably. We expectto clock an organic broad-based double-digit constant currency growth overthe medium term. Weaim to maintain operating margins at 18% plus overthe medium term with an upward bias. With considerable room for organicgrowth inthe business, the Companywill only be opportunisticwith respect to acquisitions, which may either be immediatelyvalue-accretive due to operating leverage or enable consolidation ofleadership in existing categories.
Overall,the Companywill aim foravolumegrowth of8-10% and a topline growth ofl3-15% (depending on inflation) over the medium term. However, there could be marginal deflation in FY20. Investments towards brand building will be stepped upto support market growth initiatives in core categories and expansion into adjacentcategories. The Companywill also aggressively invest behind the recent innovations and a visibly strong pipelineforthe next 2-3 years. Consequently, ASPspends is expected to gradually move up by 100 bps of Sales from current levels on an annualised basis. Operating margin is expected to be maintained at 18% plus overthe medium term. The Companywill continueto drivecost excellence across the organisation to extract savings thatwill be redeployed towards igniting Profitable growth.
Risks & Opportunities
Risks are an integral partofany business environmentand it is essential thatwe createstructures and processes that are capable ofidentifying and effectively mitigating the same.
For Marico, the risks are multi-dimensional and thereforewe look atitina holistic manner, straddling both, the external environment and the internal processes. These risks can be broadly classified into three categories:
The Company integrates risk management with strategy formulation and business planning processes. Details of the risks envisaged along with Companys strategic response to the same have been presented in the chapter Risk Management & Materiality.
Internal Control Systems and Their Adequacy
Marico hasawell-established and comprehensive internal control structure across thevalue chain to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, all transactions are authorized, recorded and reported correctly and that operations are conducted inan efficient and cost effective manner. The key constituents of the internal control system are:
Establishmentand periodic reviewofbusiness plans
Identification ofkey risks and opportunities and regular reviews by top management and the Board of Directors
Policies on operational and strategic risk management
Clearand well defined organisation structure and limits of financial authority
Continuous identification of areas requiring strengthening ofinternal controls
Operating procedurestoensureeffectivenessofbusiness processes
Systems ofmonitoring compliancewith statutory regulations
Well-defined principles and procedures forevaluation of new business proposals/capital expenditure
A robust management information system
A robust internal audit and review system
Arobustframeworkon Internal FinancialsControls
An effective whistle blowing mechanism
Training/awareness sessions on policies&code ofconduct compliance
The statutoryauditors, as part of theiraudit process, carry out a systems and process auditto ensure that the ERP and other IT systems used for transaction processing have adequate internal controls embedded to ensure preventive and detective controls. Theaudit report is reviewed bythe managementforcorrective actions and the same is also presented to and reviewed bytheAudit Committeeof the Board.
Internal audits and management reviews are undertaken on a continuous basis, covering various areas across the value chain such as procurement, manufacturing, information technology, supply chain, sales, marketing and finance. The internal audit program is reviewed by theAudit Committee atthe beginning of theyearto ensure thatthecoverage of the areas is adequate. Reports of the internal auditors are regularly reviewed by the management and corrective action is initiated to strengthen the controls and enhance the effectiveness of the existing systems. Summaries of the reports and actions taken on auditfindings are presented to theAuditCommitteeof the Board.
The Company has also deployed audit analytics in domain ofprocurement, manufacturing, supplychain &employee spends ofMarico India. It helps in continuous control monitoring ofcontrol effectiveness and areas where actions are required. The Internal Controls team reviews outputof this tool and derives corrective action on timely basis. In orderto strengthen control environment, auditanalytics will be deployed in otherfunctions ofMarico India aswell as key international geographies.
Ernst&Young LLP has been carrying out internal audits for Maricoforthe lastseven years. Theworkofinternal auditors is coordinated byan internal team at Marico. This combination ofMaricos internal team and expertise of a professional firm ensures independence as well as effective value addition & protection.
Internal Financial Controls (IFC)
As persection 134(5) (e) ofCompanies Act 2013JFC means the policies and procedures adopted by companyfor ensuring:
Accuracy & completeness ofaccounting records
Orderly&efficientconductofbusiness, including adherence to policies
Forlisted companies, requirement is to havelFCframework in place&ensure operating effectiveness ofcontrols. Marico India developed IFCframework basis reviewofPolicies, procedures & processes. Controlsforeach of the processes were documented. Design&operating effectiveness of controls is being tested by management onannual basis and lateraudited bythe statutory auditors. Statutory auditors have given a clean report after checking effectiveness of controls.
The management believes that strengthening IFCisa continuous process and therefore it will continue its efforts tomakethecontrols smarter with focus on preventive & automated controls as opposed to mitigating and manual controls. Overaperiod, the Companywill also extend this frameworkto its overseas subsidiaries. To startwith, IFC framework has already been implemented in Marico Bangladesh Limited, Companys largest subsidiary.