INITIATING COVERAGE 18 MAR 2015

Marico Kaya
BUY
INDUSTRY CONSUMER Skin care ‘Titan’
CMP (as on 17 Mar 2015) Rs 1,515 A pioneer in cosmetic dermatology, Kaya remains  With a well established brand, 180 dermatologists
Target Price Rs 1,675 unchallenged in the organised skin clinic space in and 114 touch points across India and the Middle
India. Management is confident of 20% revenue East at prime locations, Kaya is well positioned to
Nifty 8,723
CAGR over the next 3-5 years, a claim that looks benefit from a rapidly premiumising and fast growing
Sensex 28,736 consumer base (specialized skin care and hair
surpassable. A new found focus on product sales
KEY STOCK DATA adds synergies to its story. Kaya turned profitable removal market ~Rs 60bn growing at 25%+).
Bloomberg MAKA IN in FY14 (after 11 years of losses) and has significant  Management intends to add 10-15 clinics and 20+
untapped operating leverage in its operations. skin bars in India each year to drive penetration and
No. of Shares (mn) 13
scale. In addition, 2 clinics will be added in the ME.
MCap (Rs bn) / ($ mn) 20/312 The business model is unique and impregnable.
Hardly any long term capital is required as Significant operating leverage
6m avg traded value (Rs mn) 186  Store level EBITDA margin of 35% in India is much
operations require negative working capital. Cash
STOCK PERFORMANCE (%) of Rs 1.8bn post demerger (from Marico) and higher than reported margin of 8% in 3QFY15 and 5%
52 Week high / low Rs 1,580/214 improving OCF are adequate to fund growth over in 9MFY15. We think Kaya is only beginning to derive
the next 3-4 years. By then, operations may well operating leverage.
3M 6M 12M
spew enough cash to continuously expand Kaya’s  With average capacity utilization of ~35%, even the
Absolute (%) 78.4 152.7 - store level EBITDA has room for improvement as a
footprint in a grossly underpenetrated space.
Relative (%) 70.8 144.8 - large chunk of store level costs is also fixed in nature
Valuations are rich at ~5x FY15 revenues (net of Rs (rentals, depreciation). In the growth phase, the store
SHAREHOLDING PATTERN (%) 1.8bn cash), but do not worry us. Our estimates put level EBITDA margin may not rise as older stores post
Promoters 60.55 FY17 revenues at ~Rs 4.7bn (19% CAGR over FY15- rising margins while newer stores take time to
FIs & Local MFs 4.65 FY17E). With multi-year growth possible and no breakeven. However, a stabilised EBITDA margin (at
incremental funding needed, we value Kaya at 4x store level as well as co level) much higher than
FIIs 5.95
FY17E EV/sales. Recommend BUY with a TP of Rs current levels is ultimately possible.
Public & Others 28.85 1,675.
Source : BSE Financial Summary FY14* FY15E FY16E FY17E
Revenue to gain from SSSG and store expansion Net Sales (in Rs Mn) 2,911 3,343 3,932 4,732
 Kaya is targeting SSSG of 10-12% and revenue CAGR EBIDTA (in Rs Mn) 104 349 445 571
of 20% over the next 3-5 years. As 65% of revenues APAT (in Rs Mn) 47 372 417 527
are derived from doctor led services (cure), EPS (Rs.) 3.6 28.9 32.3 40.8
downgrading to cheaper alternatives (or salons) is P/E (x) 417.7 52.5 46.8 37.1
Harsh Mehta unlikely. Also, Kaya plans to increase synergistic EV/EBITDA 170.8 50.7 39.4 30.2
[email protected] contribution from products from 20% to 35% over RoE (%) 2.5 10.4 10.6 12.0
+91-22-6171-7329 the next 3-5 years. Source: Company, HDFC sec Inst Research * Kaya India + Kaya ME
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 MARICO KAYA : INITIATING COVERAGE

KAYA : A UNIQUE BUSINESS MODEL

 Kaya’s business directly addresses the rapidly growing  Kaya Skin Bars : With an addressable market of ~Rs
Kaya can capitalize on beauty & wellness services market (~Rs 110bn) in 7bn growing at 20% CAGR, Kaya has launched retail
opportunity of ~Rs 60bn in India with a unique and durable overlay : cure. The outlets in mini-store format offering premium skin
Beauty & Wellness which is addressable opportunity for Kaya, in specialized skin care products. These offer a wide array of Kaya’s
growing at 25%+ with premium care and hair removal, is Rs ~60bn which is growing everyday and specialized skincare products even
at 25%+ CAGR, within which premium products and beyond their clinics. We think this can have important
products growing at 2x mass services are growing at 2x mass segments. growth and brand reinforcement implications over
products the medium term.
 Currently, ‘Cure’ is a ~Rs 6bn opportunity with strong
entry barriers and sticky clientele. Almost 75% of this
market is served by local dermatologists. Kaya is the Kaya at a glance
only organised, skin clinic chain in India (barring
 95 outlets in India
hospitals). Kaya’s management says this space is
‘Cure’ services offer a more growing at ~27% annually in India.  19 outlets in the Middle East
serious proposition backed by the  ‘Cure’ services offer a more serious proposition  9 Kaya Skin Bars
backed by the presence of medically qualified
presence of medically qualified  180 qualified dermatologists
dermatologists – whether in standalone clinics or
dermatologists Kaya’s clinic chain. This not only pulls in upper-end  500 beauty technicians
clientele of the ‘care’ segment, but also ensures  Hair removal, Anti ageing, Acne and Hyper-
strong pricing power. For instance, consumers switch pigmentation are the top four services
from waxing to permanent hair removal wherein
Kaya is a market leader with laser based technology.  54 strong product portfolio

 Not surprisingly, the ‘cure’ experience triggers ‘care’  Kaya Smiles (Loyalty program) has over 120 thousand
purchases for many of Kaya’s customers. This is active members
important because, the ‘care’ business is a huge  Kaya Smiles members contribute 80% of Kaya’s total
opportunity (~Rs 100bn), but remains highly revenues
fragmented and competitive. Kaya offers premium
facials and premium hair removal (which together  > Rs 7,500 avg spend per customer (India)
comprise roughly half the opportunity).  USD 419 avg spend per customer (Middle East)

Page | 2
 MARICO KAYA : INITIATING COVERAGE

KAYA : THE OPPORTUNITY

 India’s long term consumption trends are expected to Demographic dividend
We expect Kaya to be one of the continue on a secular growth trend driven by <15 years 15-60 years >60 years
biggest beneficiaries of favourable demographics, increase in per capita 100% 7 7 8 8 9 10
consumption jump owing to a income levels and rising premiumisation, especially in
urban areas. 80%
strong urban focus, premium
 Of the entire workforce of 400 mn in India, 30% is 57 57 58 60
positioning (15-20% premium to 60% 62 63
women. A sixth of this ie. 20 mn women are in urban
competitors) and dominance in 40%
jobs which augur well for the business.
the fast growing specialised skin
 Meanwhile, the men’s grooming market is growing at 20% 37
care solution market 36 34 32 30 28
25% CAGR. Males currently contribute 15% of Kaya's
revenue, a metric that can only rise with time. 0%
CY90 CY95 CY00 CY05 CY10 CY15E
 We expect Kaya to be one of the biggest
beneficiaries of consumption growth in India owing Source : McKinsey, HDFC sec Inst Research
to a strong urban focus, premium positioning (15-
20% premium to competitors) and dominance in the India > China by 2040
fast growing specialised skin care solution market.  In 2010, the working age population (people over 15
Young earners are typically years old) was 1,125 mn in China. In India it was 850
more aspirational, better Kaya’s demographic dividend mn.
connected, networked, more  More than half of India's population is younger than  The median age of China’s population was 34 years,
technology-savvy and more self the age of 25 years and the entry of this group into in India it was only 25 (for comparison, the median
the working population over the next few decades is age in Europe is 43 years).
conscious. Kaya will immensely expected to spur India's economic growth.
benefit from the rise in young  In absolute terms, in 2040 there will be around 1
 Young earners are typically more aspirational, better billion working age people in India compared with 0.9
earners in urban India connected, networked, more technology-savvy and billion in China.
more self conscious. Kaya will benefit from the rise in
young earners in urban India.

Page | 3
 MARICO KAYA : INITIATING COVERAGE

India’s working population to outpace China’s Middle class households

India will witness surge in
Brazil China India Russia 100 Mn
average national income. 71.0 87
% of total population
Marico Kaya will be a principal 80
68.0
beneficiary as urban income
growth will lead national 65.0 60
47
average 62.0
40
59.0
20
56.0 7

CY15E

CY20E

CY25E

CY30E

CY35E

CY40E
CY00

CY05

CY10
0
CY05 CY15E CY25E

Source : Global Insight database, HDFC sec Inst Research Source : Industry, HDFC Sec Inst Research

 India will witness surge in average national income.  A rising middle class can drive Kaya’s business for
Marico Kaya will be a principal beneficiary as urban many more years to come.
income growth will lead national average.

India to witness surge in average national income The middle class : across Asia
Rural All India Urban % of population
250 100
INR '000
80
200
60
150 40
20
100
0

Philippines

Indonesia
Thailand

China

Vietnam
Malaysia

India
50

0
CY90 CY00 CY10 CY20E CY30E

Source : India Urbanization Econometric Model, McKinsey Global Source : Asian Development Bank, HDFC Sec Inst Research
Institute analysis, HDFC sec Inst Research Year : CY10
Middle Class : per capita consumption of $2–$20 per day

Page | 4
 MARICO KAYA : INITIATING COVERAGE

High disposable income is a recipe for higher spending 70% of GDP to come from urban India
By 2020 the percentage of % of disposable income Rural Urban
40.0
India’s population living in cities %
32.0 100
will rise to 35% from 31% in
24.0 80
2010. With all clinics in cities, 46 54 58
16.0 69
Kaya is well placed to benefit 60
8.0
from this phenomenon 40
0.0

South Korea

Indonesia
Thailand
China

India

Malaysia
54 46
20 42
31
0
CY90 CY01 CY08 CY30E

Source : McKinsey Global Institute analysis, HDFC Sec Inst Research Source : India Urbanization Econometric Model, McKinsey Global
Institute analysis, HDFC sec Inst Research
Urbanisation
 By 2020 the percentage of India’s population living in Statewise urbanization analysis
79% of Kaya’s clinics in India are cities will rise to 35% from 31% in 2010. With all CY30E CY08

located in top 8 cities clinics in cities, Kaya is well placed to benefit from Tamil Nadu 53
67
this phenomenon. Gujarat 66
44
Cities No. of Clinic Maharashtra 58
 Urban population, currently at ~380mn, is expected 44
Karnataka 57
Mumbai 23 to touch 590mn by 2030 (2.5% CAGR). 37
Delhi 15 Punjab 52
36
Bangalore 10
Rapid urbanisation Haryana 31
45
700 Mn West Bengal 40
Chennai 7 29
600 Kerala 41
Hyderabad 7 28
Andhra Pradesh 46
Kolkata 6 500 28
Madhya Pradesh 32
Pune 5 400 25
Jharkhand 31
Ahmedabad 2 25
300 33
Rajasthan 24
200 Chhattisgarh 40
24
100 Uttar Pradesh 26
21
0 Orissa 24
18
CY91 CY01 CY08 CY30E Himachal Pradesh 20
12 % of total population
Source : McKinsey Global Institute analysis, HDFC sec Inst Research Bihar 17
9

Source : India Urbanization Econometric Model, McKinsey Global

Institute analysis, HDFC sec Inst Research

Page | 5
 MARICO KAYA : INITIATING COVERAGE

KAYA : THE BUSINESS PHASES OF EVOLUTION

Incurred significant set up costs, primarily
Long gestation period (took 11 FY03-FY06
advertisement and sales promotion, leading to losses
Significant entry barriers to new entrants
years to turn profitable) will FY08-FY10 Ill-timed rapid store addition
 A pioneer in cosmetic dermatology, Kaya remains
discourage new entrants unchallenged in the organised skin clinic space in
FY11-FY13 Shift in strategy from cure to care hurt profitability
Learning from past mistakes, company undertook
India. Its only major competition comes from course correction. (1) Increased focus on cure (higher
standalone dermatologists (personalised businesses Post FY13 margin and lower competition) (2) Store expansion
with local footprint), but the capital intensive started only in FY15, perfectly timed with anticipated
technology (medical equipment) prevents them from urban revival
being a credible threat. Source : Company, HDFC sec Inst Research
Kaya is targeting SSSG of 10-
 Being a capital intensive business, Kaya requires Recent Commentary
12%, revenue CAGR of 20% over continued investments to achieve (1) Scale and (2)
the next 3-5 years technology upgradation.
 Management is confident of 15% revenue growth in
FY15. We foresee revenues of ~Rs 3.3bn in FY15. Kaya
 The business needs continuous investments in is targeting SSSG of 10-12%, revenue CAGR of 20%
training owing to (1) Lack of trained manpower – over the next 3-5 years.
Doctors and Beauty Therapists for high end services,
(2) High attrition since Kaya is in a sunrise industry  The company plans to increase contribution from
products from 20% to 35% over the next 3-5 years
Kaya Smiles has over 120  Long gestation period (Kaya took 11 years to turn
backed by expansion in number of clinics and Kaya
profitable) will discourage new entrants
thousand active members. Skin Bars, which offer a wide array of Kaya’s everyday
TURNED PROFITABLE AFTER 11 YEARS OF LOSS and specialized skincare products in a mini-store
Members contribute 80% of
Store additions (LHS) PBIT (Rs mn) format.
Kaya’s revenues 25 100
47
50
 Currently, Kaya boasts of 114 (plus 9 Kaya Skin bars)
20
(37) (8) touch points across India and Middle East.
-
(48)
15 (79) (8) (50)  Loyalty Program : Kaya Smiles has over 120 thousand
(100)
active members. Members contribute 80% of Kaya’s
(123)
10 total revenues.
(127) (150)
5 (200) India business
(185)
(250)  In India, the company is not impacted by demand
-
(300) sluggishness seen in FMCG businesses as penetration
(308) is still pretty low. Northern and Eastern India are
(5) (325) (350)
doing exceedingly well.
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14*

 Customer count has turned positive in 3QFY15 to 2%

Source : Marico AR, HDFC sec Inst Research
YoY (-2% in 2QFY15) led by advancement of
* Due to sale of Derma Rx, FY14 nos are not strictly comparable
technologies and launch of newer services and

Page | 6
 MARICO KAYA : INITIATING COVERAGE

products. The company plans to launch hair solutions from 250 to 180, (2) Beauty technicians remained at
in 1QFY17 (currently in test phase) which will further 500 despite growth in outlets, (3) A&P has been
In FY14, 67% of revenues (~70% in aid growth. curtailed from 10% of sales in FY13 to 8% in FY14.
9MFY15) were derived from Rather than spending on mass/national media, the
 In FY14, 67% of revenues (~70% in 9MFY15) were
company plans to focus on low-cost online and
doctor led services (cure) derived from doctor led services (cure) and hence
focused advertisement which will further reduce A&P
downgrading to cheaper alternatives is unlikely. This
to 7% of sales, (4) Reduction in rentals and
is a conscious shift. Post FY13, the company increased
overheads.
its focus on cure (higher margin and lower
competition) which led to increase in contribution STORE LEVEL EBITDA MARGIN BREAK-UP : FY14
from 60% in FY13 to 67% in FY14. Gross margin (%) 80
The company plans to increase Rent (%) 14
CATEGORY MIX (INDIA) Staff cost (%) 15
contribution from product sale (%) FY13 FY14 9MFY15 Doctor fees/professional charges (%) 9
from 20% to 35% over the next 3- Cure 60 67 70 Clinic overheads (%) 7
Care 20 13 12 Store level EBITDA (%) 35
5 years backed by expansion in
Products 20 20 19 Source : Company, HDFC sec Inst Research
number of clinics and Kaya Skin Source : Company, HDFC sec Inst Research
Bars  The company has renewed lease rentals (for 9 years)
 The company plans to increase contribution from for almost two third of clinics. Hence, rental increase
product sales from 20% to 35% over the next 3-5 will be moderate in coming years. Furthermore,
years backed by expansion in both clinics and Kaya operating leverage can help curtail staff cost (as % of
Skin Bars. sales) and clinic overheads (as % of sales). As per the
The company is looking to add
 In India, Kaya currently operates 95 clinics (9 added management, 38% store level EBITDA is achievable
10-15 clinics and 20+ skin bars in YTD and 4-6 in various stages of capex to be added in and sustainable. Some stores deliver 45-50% store
India each year FY15) along with 9 Skin Bars (3 in 3QFY15). The level EBITDA margin.
company is looking to add 10-15 clinics and 20+ Kaya
OPERATIONAL METRICS (INDIA)
Skin Bars in India each year.
Growth YoY (%) FY12 FY13 FY14 9MFY15
 The overall capacity utilization currently stands at Collection SSSG (cash inflow) 13 2 10 8
As per the management, 38% 35%. High performing clinics have a utilization of Net Revenue SSSG 4 8 7 11
store level EBITDA is achievable 55%. Customer count -1 -3 3 1
and sustainable. Some stores  The cost of setting up a clinic is Rs 10mn half of which Ticket Size (INR) >6,000 >6,500 >7,000 >7,500

deliver 45-50% store level EBITDA goes towards machinery and technology. Skin Bars
would require ~Rs 2mn. Kaya India
margin (Rs mn) FY11 FY12 FY13 FY14 9MFY15
 Thus Kaya can incur a capex of Rs 300mn per annum. Revenue from Ops 1,080 1,417 1,437 1,534 1,265
 New stores require 15-18 months to break-even. EBITDA margin (%) (6.8) (0.0) 5.0
 In India, store level EBITDA surged from 16% to 35% RPAT (413) (30) (298) 340 134
over the last five years. This was led by various cost OUTLETS (nos) 87 88 87 86 92
saving initiatives : (1) Reduction of dermatologists Source : Company, HDFC sec Inst Research

Page | 7
 MARICO KAYA : INITIATING COVERAGE

CATEGORY MIX (MIDDLE EAST)

Middle East business
(%) FY13 FY14 9MFY15
The company plans looking to
 Marico Kaya is yet to witness any significant Cure 78 79 79
add 2 clinics in the Middle East reduction in demand owing to well entrenched Care 12 11 11
every year. This would hurt premium positioning in the ME. As per the Products 10 10 10
margins in FY16E management, discretionary spends may come down Source : Company, HDFC sec Inst Research
in ME with 2-3 quarter lag but Marico Kaya would be OPERATIONAL METRICS (MIDDLE EAST)
mostly insulated. Growth (% YoY)
 In ME, Kaya currently operates 19 clinics (1 clinic FY13 FY14 9MFY15
In 3QFY15, ME delivered 20% added in 3QFY15) Collection SSSG (cash inflow) 5 8 16
Net Revenue SSSG 16 8 20
EBITDA margin. Owing to
 The company plans to add 2 clinics in the Middle East Customer count 4 1 5
upcoming expansion, every year. Margin levers are limited as the business Ticket Size (USD) 350 380 419
management expects sustainable mix leans heavily towards cure already. Source : Company, HDFC sec Inst Research
margin in the ME to be in the  In 3QFY15, ME delivered 20% EBITDA margin. Owing
Kaya Middle East
range of 15-16%. to upcoming expansion, management expects
(Rs mn) FY11 FY12 FY13 FY14 9MFY15
sustainable margin in the ME to be in the range of 15-
Revenue from Ops 566 872 1,155 1,377 1,181
16%. EBITDA margin (%) (2.9) 7.5 18.0
RPAT (100) (414) (186) 59 178
OUTLETS (nos) 16 19 18 18 19
Source : Company, HDFC sec Inst Research

Page | 8
 MARICO KAYA : INITIATING COVERAGE

KEY ASSUMPTIONS
(%) FY14* FY15E FY16E FY17E
India Business
Revenue growth 7.0 12.0 22.0 25.0
COGS as % of sales 19.7 19.3 19.2 19.0
Staff cost as % of sales 26.1 25.5 24.5 24.3
Ad spends as % of sales 8.3 8.0 7.5 7.0
Rent as % of sales 17.1 16.0 15.5 15.3
Other expenses as % of sales 28.8 27.0 25.5 25.3
EBITDA Margin 0.0 4.3 7.8 9.3
ME Business
Revenue growth 19.2 18.0 13.0 15.0
COGS as % of sales 17.5 16.0 15.8 15.8
Staff cost as % of sales 44.8 43.0 42.8 42.7
Ad spends as % of sales 7.1 6.5 6.3 6.0
Rent as % of sales 8.2 7.0 7.5 7.8
Other expenses as % of sales 14.9 10.5 12.5 12.3
EBITDA Margin 7.5 17.0 15.3 15.6
Consol Kaya metrics
Revenue growth 12.5 14.8 17.6 20.3
COGS as % of sales 18.6 17.7 17.6 17.5
Staff cost as % of sales 34.9 34.0 33.0 32.5
Ad spends as % of sales 7.7 7.3 6.9 6.6
Rent as % of sales 12.9 11.6 11.8 11.9
Other expenses as % of sales 22.2 19.0 19.4 19.4
EBITDA Margin 3.6 10.4 11.3 12.1
Source : Company, HDFC sec Inst Research
*Based on Kaya India + Kaya ME. The company declared 15m nos for Mar-14

Page | 9
 MARICO KAYA : INITIATING COVERAGE

INCOME STATEMENT BALANCE SHEET

(Rs mn) FY14* FY15E FY16E FY17E (Rs mn) FY14* FY15E FY16E FY17E
Net Sales 2,911 3,343 3,932 4,732 SOURCES OF FUNDS
Growth (%) 12.5 14.8 17.6 20.3 Share Capital 129 129 129 129
Material Expenses 542 591 691 830 Reserves 3,275 3,595 4,012 4,539
Employee Expenses 1,017 1,137 1,298 1,537 Total Shareholders Funds 3,404 3,724 4,141 4,668
A&P Expenses 225 243 272 310 Long Term Provisions 35 35 35 35
Rent 376 389 463 563 TOTAL SOURCES OF FUNDS 3,439 3,759 4,176 4,703
Other Operating Expenses 647 635 764 920 APPLICATION OF FUNDS
EBIDTA 104 349 445 571 Net Block 183 505 657 783
EBIDTA (%) 3.6 10.4 11.3 12.1 CWIP 6 6 6 6
EBIDTA Growth (%) (178.8) 237.1 27.3 28.4 Goodwill 1,980 1,980 1,980 1,980
Other Income 39 143 120 136 Investments 1,704 1,704 1,704 1,704
Depreciation 95 120 147 174 LT Loans & Advances 148 192 226 272
EBIT 48 372 417 532 Inventories 247 264 300 348
Interest 1 - - - Trade Receivables 4 14 16 19
PBT 47 372 417 532 Cash & Equivalents 146 144 306 615
Tax - - - 5 ST Loans & Advances 185 260 343 444
Minority Interest - - - - Other Current Assets 145 5 5 5
Core PAT 47 372 417 527 Current Assets 727 686 970 1,431
Core PAT Growth (%) (182.4) 695.7 12.1 26.2 Trade Payables 181 183 205 233
EO items (net of tax) 351 (52) - - Other Current Liabilities & Provisions 1,128 1,131 1,162 1,240
RPAT 398 320 417 527 Current Liabilities 1,309 1,314 1,367 1,473
RPAT Growth (%) (182.4) (19.5) 30.3 26.2 Net current Assets (582) (628) (397) (42)
EPS 3.6 28.9 32.3 40.8 TOTAL APPLICATION OF FUNDS 3,439 3,759 4,176 4,703
EPS Growth (%) (174.6) 695.7 12.1 26.2 Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research *Consolidated Balance Sheet
*Based on Kaya India + Kaya ME. The company declared 15m nos for Mar-14

Page | 10
 MARICO KAYA : INITIATING COVERAGE

CASH FLOW KEY RATIOS

(Rs mn) FY14* FY15E FY16E FY17E FY14* FY15E FY16E FY17E
Reported PAT 398 320 417 527 PROFITABILITY (%)
Non-operating & EO items 390 91 120 134 GPM 81.4 82.3 82.4 82.5
PAT from Operations 7 229 297 392 EBITDA Margin 3.6 10.4 11.3 12.1
Interest, Dep & Others (348) 120 147 174 EBIT Margin 0.3 6.8 7.6 8.4
Working Capital Change 64 206 (168) (9) APAT Margin 1.6 11.1 10.6 11.1
OPERATING CASH FLOW ( a ) (277) 555 277 558 RoE 2.5 10.4 10.6 12.0
Capex 459 (442) (300) (300) Core RoCE 1.2 13.1 14.6 17.2
Free Cash Flow 182 113 (23) 258 RoCE 2.0 10.3 10.5 11.9
Non-operating income 39 143 120 134 EFFICIENCY
Investments & Others (340) (259) 65 (83) Tax Rate (%) - - - 1
INVESTING CASH FLOW ( b ) 158 (558) (115) (249) Asset Turnover (x) 1.2 0.9 1.0 1.1
Debt Issuance (1) - - - Inventory (days) 29 29 28 27
Interest (1) - - - Debtors (days) 6 2 2 2
Dividend - - - - Payables (days) 42 20 19 18
FINANCING CASH FLOW ( c ) (2) - - - Cash Conversion Cycle (days) (7) 10 10 10
Fx effect 166 - - - Debt/EBITDA (x) - - - -
NET CASH FLOW (a+b+c) 46 (2) 162 309 Net D/E (0.5) (0.5) (0.5) (0.5)
Closing Cash 146 144 306 615 Interest Coverage 5.9 - - -
Source: Company, HDFC sec Inst Research PER SHARE DATA
*Based on Kaya India + Kaya ME. The company declared 15m nos for Mar-14 EPS (Rs/sh) 3.6 28.9 32.3 40.8
CEPS (Rs/sh) 11.0 38.2 43.8 54.4
BV (Rs/sh) 263.9 288.7 321.1 361.9
DPS (Rs/sh) - - - -
VALUATION
P/E 417.7 52.5 46.8 37.1
P/BV 5.7 5.2 4.7 4.2
EV/EBITDA 170.8 50.7 39.4 30.2
OCF/EV (%) (1.6) 3.1 1.6 3.2
FCF/EV (%) 1.0 0.6 (0.1) 1.5
FCFE/mkt cap (%) 0.9 0.6 (0.1) 1.3
Dividend Yield (%) - - - -
Source: Company, HDFC sec Inst Research
*Based on Kaya India + Kaya ME. The company declared 15m nos for Mar-14

Page | 11
 MARICO KAYA : INITIATING COVERAGE

Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Disclosure: I, Harsh Mehta, MBA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or
securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial
ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its
associate does not have any material conflict of interest.
Any holding in stock – No

Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at,
based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as
to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or
their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial
instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or
other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing
requirement within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced,
distributed or published for any purposes without prior written approval of HDFC Securities Ltd .
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition,
investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned
in this mail and/or its attachments.
HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be
engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this
report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or
purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past
twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of
managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither
HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment
banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any
compensation/benefits from the subject company or third party in connection with the Research Report.

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

Page | 12