Maintain Neutral Rating on Marico - Angel Broking

The Board of Directors of Marico has approved the restructuring of businesses, corporate entities and organization involving a) the demerger of Kaya Skin Care Solutions into a separate company by name Marico Kaya Enterprises Ltd (MAKE) and b) formation of a unified FMCG business with operations in India and abroad headed by a single CEO. The restructuring plan would be effective from April 1, 2013.

As per the proposed Kaya demerger plan, MAKE will become the holding company of Kaya Ltd (India) and Kaya entities in the Middle East and South East. Currently the promoters of Marico have a 60% stake in Marico and post demerger the shareholding structure of MAKE will be identical to Marico's current shareholding structure. Shareholders of Marico will be allotted one share of MAKE for every 50 shares held in Marico. The equity shares of MAKE will be listed in both BSE and NSE after all the statutory approvals are obtained.

Marico currently has three business verticals namely a) Indian Consumer products business b) International FMCG business and c) Kaya Skin Care Solutions (Kaya) with operations in India and abroad. Post the restructuring, Kaya Skin Care solutions would operate as a separate listed entity (MAKE). The Indian and International FMCG businesses which were till date headed by two different CEOs will be unified and will be headed by a single CEO.

Kaya has been a loss making venture for Marico. During FY2012, it made a loss of Rs.29cr at the PBIT level on net sales of Rs.279cr (a loss of Rs.33cr in FY2011). Demerger of the loss making venture would result in better return ratios for Marico. At the CMP, Marico is trading at 28x FY2014E earnings. We maintain a Neutral on Marico.

Source : Equity Bulls

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