This is the slide of Valuation of Marico Bangladesh Ltd and was presented for the Local and Regional Round of CFA Research Challenge 2019.

1. CFA Institute Research Challenge
University of Dhaka
TEAM

2. Hair Oil?

4. BUSINESS OVERVIEW: Business Segments
A Leading Player in FMCG Industry: Hair Care Segment
Sales Growth
12%
EPS Growth
23%
Source: Annual Report
BRANDED
COCONUT
HAIR OIL
Market Leader
Market
Share87%
Baby Care
Key Brands:
Market
Share
VALUE ADDED
HAIR OIL(VAHO)
Male Grooming
Saffola
Color 4 Others
22%

5. “ Potential to be an
economic powerhouse”

6. INDUSTRY OVERVIEW: FMCG Sector
Increasing Consumption Driving Demand
Macro Driver’s
Industry Trends
Growing MAC
population
Rural Economy &
Infrastructure
Large Youth
Consumer
Demography
Premiumization Uptrend in Traditional
Retail & E-FMCG
Industry
Tailor Made
Packaging
Growth Driver’s Segment
Male Grooming Products
Skin Care
Hair Care
Value Added Products
Edible Oil
Baby Care
Industry
BDT 150
bn turnover
9%
Growth

8. 2017 2018 2019 2020
0
200
400
600
800
1000
1200
1400
1600
1800
2000
INVESTMENT RECOMMENDATION
BDT 1700.1
Current Price
Closing Price
As of 29-Nov-2019
BDT 1561.32
Target Price
Downside
8.16%
COMPANY FUNDAMENTALS CATEGORY A
Market Cap (BDT mn) 56,630.7
Paid-up Capital (BDT mn) 315
Shares Outstanding (mn) 31.5
Free Float (%) 10%
52 Week Avg Daily Volume 2,143.90
52 Week Avg Daily Turnover (BDT) 2,745,626.71
52 Week Price Range (BDT) 1095-1827.90
Current P/E 34.65
Current P/NAV 66.85
EPS in FY19 (BDT) 64.23
NAVPS in FY19 (BDT) 41.34
HOLD

9. Core Segment
Slowdown
Moderate
Industry
Positioning
INVESTMENT POSITIVES
Prudent
Diversification
Sound
Functional
Capability
REASONS VALIDATING OUR RECOMMENDATION
Why HOLD on the MBL Stock ?

10. INVESTMENT NEGATIVES
Core Segment
Slowdown
Moderate
Industry
Positioning
INVESTMENT POSITIVES
Prudent
Diversification
Sound
Functional
Capability
REASONS VALIDATING OUR RECOMMENDATION
Why HOLD on the MBL Stock ?

11. 1.1| SLOWDOWN IN BRANDED COCONUT HAIR OIL CONSUMPTION
6,000.00
6,200.00
6,400.00
6,600.00
6,800.00
7,000.00
7,200.00
7,400.00
7,600.00
7,800.00
8,000.00
8,200.00
2018A 2019A 2020E 2025F
2018A 2019A 2020E 2025F
Source: HDFC Security, Team Analysis
Market Size of BCNO Segment
(2018A-2025F)
Shifting Consumer Preferences
Population Growth-
to Drive Volume
Limiting Market Expansion
MarketSizeBDTmn
BDT
7.9 bn
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks
Will lead to

12. 1.1| IMPACT: SLOWING SALES GROWTH IN PARACHUTE COCONUT OIL
*Source: Team Analysis, Annual Report; Abbreviation: PCNO- Parachute Coconut Oil
PCNO Contribution to Sales will go Down
By The End of…
2019A 2025F
69%
52%Of Total Revenue
Of Total Revenue
Current Market Share (87%)
At Best to Reach 90%
Competitions from Cute, Jui
Market is Saturated
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

13. 1.2 COPRA PRICE RISE RESULTING IN GROSS MARGIN TO DECREASE
Source: World Bank estimate, Team Analysis
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F
Lucrative Gross Profit to Go Down
80% COGS is Copra Concentrated
RATIONING
0%
10%
20%
30%
40%
50%
60%
2018 2019 2020 2021 2022 2023 2024 2025
∆GPM - 400 bps
Copra Price Forecast to Grow by 5%
Deflation
Lower Raw-material cost inflating Gross Margins
CopraPriceUS$/MT
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

14. INVESTMENT NEGATIVES
Core Segment
Slowdown
Moderate
Industry
Positioning
INVESTMENT POSITIVES
Prudent
Diversification
Sound
Functional
Capability
REASONS VALIDATING OUR RECOMMENDATION
Why HOLD on the MBL Stock ?
1. Slowdown in PCNO
2. Input Cost to Rise

15. 2.1| VAHO SEGMENT TO POSE VOLUME GROWTH OPPORTUNITY
Consumer Changing Preference to Drive Sales
VAHO: Value added hair Oil
VAHO to drive Growth
10.1%
CAGR
Current Estimated Growth
23.5%
CAGR
India 2006(Nihar)
Intro In BD 2012
India 2000(Beli)
Intro In BD 2003
Product Line Extension Strategy
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2017 2020E 2025F
SalesBDTbillion
24%
of Sales
37%
of Sales
VAHO Sales
Introducing New Product from Parent Portfolio… IMPACT ON SALES

16. 2.2| DIVERSIFYING INTO NON-HAIR OIL SEGMENTS LIKELY TO BOOST PROFIT MARGIN
Probable Segment to Boost Profitability
Baby Care Male Grooming
Diversification to Other Segments
-
200.00
400.00
600.00
800.00
1,000.00
1,200.00
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25
12.2%
CAGR
Sales from other category (NHO)
Key to Bring in Higher
Profit Margins
Customer Preference Economics is in
MBL’s Favor
Source: Financial statement and Team analysis
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

17. 2.4| EXPORT TO INDIA & NEPAL LIKELY TO INCREASE VOLUME GROWTH
MBL
Lower distribution costs
Geographical Diversification…
Embarking on Export of PCNO, Saffola etc.
0
10
20
30
40
50
60
70
80
90
2019A 2020EQ2
Increased Sales
48.25%
Growth
Source: Financial statement, Team analysis
Untap potential Indian hilly side
Indirect benefits of Marico
Nepal & Seven Sisters
Depot Production plant Distribution center
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

18. INVESTMENT NEGATIVES
Core Segment
Slowdown
Moderate
Industry
Positioning
INVESTMENT POSITIVES
Prudent
Diversification
Sound
Functional
Capability
REASONS VALIDATING OUR RECOMMENDATION
Why HOLD on the MBL Stock ?
1. Opportunity in VAHO
2. Category Diversification
3. Convenient Economy
4. Export opportunity

19. 3.1| MODERATE COMPETITIVE POSITION IN VAHO SEGMENT TO RESIST HIGH MARKET CAPTURE
Fierce Competition
22% Market Share
High
Market Presence
Market Presence
Price
Low
HighLow
Market Leaders
Premium Player
Market Contenders
Market Survivor
Price
Source: Team survey
CHALLENGES
MBL Competency
Extended product line (9 variations)
VAHO: Value added hair Oil
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

20. 3.2| FOREIGN BRANDS POSE CHALLENGE IN BABY CARE & MALE GROOMING SEGMENT
Baby Care Segment Male Grooming Segment
Source: Team survey
Already well positioned: Johnson & Johnson and Meril No Clear Market Leader
Supply chain, Local Production & Strong Marketing will
Help MBL to Compete Against Foreign Brands
MBL (Baby care) Johnson & Johnson Meril
Pricing
Market Presence Marketing Network
MBL Nivea Gatsby
Pricing
Marketing Network Market presence
Strong Marketing & Foreign Backup Product Line
will Help MBL to Compete Against Foreign Brands
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

21. 3.3| LOW UPSIDE PROSPECT IN SKIN CARE & EDIBLE OIL MARKET
Skin care market
45%
20%
18%
13%
4%
Unilever
Kohinoor
Square
Keya
Others
Edible Oil market
Source: Bangladesh Cosmetics and Toiletries Manufacturers Association (BCTMA) Source: Team survey
Unilever, Nivea & Local Companies Dominate in this Market
(90% Market Share) Leaving Small Chance for MBL
Lower Marketing, High Pricing & Little Acceptance for Healthy
Edible Oil in Bangladesh Makes Suffola Unattractive
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

22. INVESTMENT NEGATIVES
Core Segment
Slowdown
Moderate Industry
Positioning
INVESTMENT POSITIVES
Prudent
Diversification
Sound
Functional
Capability
REASONS VALIDATING OUR RECOMMENDATION
Why HOLD on the MBL Stock ?
1. Moderate position in VAHO
2. Baby care & male grooming good prospective
3. Other NHO facing high competition

23. 4.1| OPERATIONAL EFFICIENCY OF MBL TO SUPPORT DIVERSIFICATION
Total Asset
Turnover
Cash
Conversion
Cycle
EPS vs.
Dividend
Payouts
1.94
1.78
1.44
-
0.50
1.00
1.50
2.00
2.50
MBL Local Peers Avg. Regional Peers Avg.
-79
-63
19
-100
-80
-60
-40
-20
0
20
40
MBL Local Peers Avg. Regional Peers Avg.
0.00
20.00
40.00
60.00
80.00
100.00
120.00
EPS Dividend Payment (BDT)
Higher Inventory Turnover
Efficient Asset Management
Sustainable EPS Growth
Constant Dividend Payout over 100%
Ensuring Sustainable Current Income
Strong Bargaining Power with Distributors
Strong Bargaining Power with Supplier
generating high Acc. Payables
Core Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks
1 2 3

24. 4.2| STRONG FINANCIAL RESOURCES TO PROVIDE FUNDING BACKUP FOR MBL
Fixed Deposit/Total Asset Ratio OCF/ Revenue Ratio
15%
24%
35%
28%
46%
38%
36% 37% 36%
34%
37%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
23%
25%
26% 27%
25% 24%
22% 23%
0%
5%
10%
15%
20%
25%
30%
2018 2019 2020 2021 2022 2023 2024 2025
Source: Team analysis
*OCF= Operating cash flow
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

25. RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks
4.4| OVER 10 YEAR EXPERIENCED MANAGEMENT BOARD WILL LEAD TO SUCCESS IN NEW PRODUCTS
Product launching head of
Parachute Advanced Hot Oil
in India, a successful name
RiskRisk
Experience: 13 year
ASHISH GOUPAL
Managing Director
Worked for trade marketing for new
products both in India & Bangladesh
with 16 year in FMCG
Experience: 6 year
SAZZAD HOSSAIN
Director – Sales
Distributor Replenishment System
and Distributor controlling
automation while working in Unilever
Experience: 5 year
Cost saving and strengthening
supply chain activities saved 11.5 cr
for MBL
Experience: 5.5 year
Excellent leadership skill to reduce
cost & production plant initiation
and operations
Experience: 7 year
Promoted new FMCG venture,
Vyome Biosciences & did gross
promotions for VLCC group, India
Experience: 3 year
PRASHANT VERMA
Director Marketing
MD. SAIFUL ALAM
Director Manufacturing
HABIBUR RAHMAN
Head-Supply Chain and NPD
HEDAYET ULLAH
Director- Customer Development
*Experience indicates- with Marico Group only
Source: Annual Report, Team analysis

26. INVESTMENT NEGATIVES
Core Segment
Slowdown
Moderate
Industry
Positioning
INVESTMENT POSITIVES
Prudent
Diversification
Sound
Functional
Capability
REASONS VALIDATING OUR RECOMMENDATION
Why HOLD on the MBL Stock ?
1. Operational efficiency
2. Strong financial backup
3. Experienced management

27. Valuation Method
HOLD
DCF
70%
Relative(Local)
10%
Relative(Regional)
20%
BDT 1700.1
(As of 29/11/2019)
BDT 1561.3
(12 Month Target Price)
8.16%
Downside
Note: Amount shown in Per share value
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

28. Valuation Method
Cost of Equity 14.51%
Risk Free Rate 9.05%
Avg. Market Return 11%
Beta (Blume Adjusted) 0.77
Foreign Ex. Risk Premium 1.50%
Forfeiture Risk Premium 1.50%
Regulatory Risk Premium 1.00%
Adjusted CAPM Method is Used
10 Year Treasury Bond Cut-Off Yield
10 Year Avg. Daily Return of the Market
Blume Adjusted for Convergence to Market Beta
Majority of Raw Material is Import Based
Illicit Product Trading is Hard to Control
Packaging & Ingredients are Subject to Regulation
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

29. DCF Price Decomposition (Using H-Model)
FY 2021 - FY2025 FY 2026 - FY2035 Terminal Value
Method CAGR
FCFE 6.30%
DDM 5%
Method CAGR
FCFE 6%
DDM 5%
Terminal Value 4.50%
Long Term Real GDP Growth
of Developed Nations
3.50%
Premium for diversification 1.00%
FCFE
80%
DDM
20%
BDT 1388.6
Source: Team analysis
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

30. Relative Valuation
Relative Valuation Multiple Factors Value Per Share (BDT)
P/E Historical 23.2 85.36 1980.25
P/E (Local Peer's) 27.4 85.36 2338.746
EV/EBITDA (Local Peer’s) 15.4 3,703 mn 1820.2
Adjusted P/NOCFPS
(Regional Peer’s)
20.23 89 1801.13
Adjusted P/E (Regional
Peer’s)
24.06 85.36 2053.704
Adjusted EV/EBITDA
(Regional Peer’s)
16.196 3,703 mn 1913.79
Summary of Relative Valuation
Source: Team analysis
Relative (Local)
10%
Relative (Regional)
20%
Relative (Local)
1. Kohinoor Chemical
2. Reckitt Benckiser
3. Glaxosmithkline
Relative (Regional)
1. Indonesia Unilever
2. Dabur India
3. Emami India
4. Hemas SL
5. Godrej India
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

31. Sensitivity of the Valuation
-8.16% 13.01% 13.51% 14.01% 14.51% 15.01% 15.51% 16.01% 16.51%
2.50% -2.31% -5.11% -7.64% -9.92% -12.00% -13.89% -15.63% -17.23%
3.50% -0.93% -3.97% -6.68% -9.12% -11.33% -13.33% -15.15% -16.82%
4.50% 0.77% -2.57% -5.53% -8.16% -10.53% -12.66% -14.59% -16.35%
5.50% 2.93% -0.82% -4.10% -6.99% -9.56% -11.86% -13.92% -15.79%
6.50% 5.75% 1.43% -2.29% -5.53% -8.37% -10.88% -13.12% -15.12%
7.50% 9.60% 4.43% 0.07% -3.64% -6.85% -9.65% -12.12% -14.30%
Sensitivity Analysis of Capital Gain/Loss
Cost of Equity
TerminalGrowth
Source: Team analysis
Tornado Analysis
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

32. Sensitivity of the Valuation
88.99% Probability of a
HOLD
Target Price: 1561.32
11.01% Probability of a
SELL
Monte Carlo Simulation Blue Sky & Grey Sky Scenario
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

33. INVESTMENT RISKS
Market Risk
MR1 I Changing Preference Of Customers
MR2 I Increase In Raw Materials Prices
MR3 I Illicit Product Trading Reducing Goodwill & profit
Operational Risk
OR1 I Turbulence In Transportation
OR2 I Fierce Competition May Result In Lower Profitability
Financial Risk
FR1 I Exchange Rate Impacting On Cost
FR2 I Interest Rate Downs Impact Fixed Financial Income
Regulatory Risk
RR1 I Tax Imposition
RR2 I Standardized Products Packaging Requirement For Imports
Corporate Risk
CR1 I Wrong Products Launching & TG Choice
Risk Matrix
Source: Team Analysis
MR-1
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

34. DRIVERS
MITIGATION
MBL’s product
named forfeitures
Assigning law enforce
agencies
Spreading mass
awareness- newspaper
report etc.
Sales
Finding and
catching fraudulent
Goodwill
conservation
Goodwill
ILLICIT PRODUCTS TRADING
FAKE
Source: Team Analysis, Financial report analysis
Source: Newspaper, social media
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

35. DRIVERS
MITIGATION
BDT depreciation
against Rupee/USD
Hedge by parent –
Marico India
Foreign export
Protection against
sudden depreciation
Raw material
FOREIGN EXCHANGE RISK
Export revenue
COGS
Source: Team Analysis, Financial report analysis
74
76
78
80
82
84
86
2015 2016 2017 2018 2019
Exchange Rate Fluctuating
Range of the
BDT/USD
fluctuation
RiskRiskCore Segment
slowdown
Prudent
Diversification
Moderate Industry
Positioning
Sound functional
capability
Valuation Risks

36. MARICO
INVESTMENT STRATEGY: WHY HOLD ?
HOLD
Copra Price Might Decline Further
Gross margin improvement
Diversification Might Work-out For MBL
Accelerate sales growth & margin
Bangladesh Might Become a Export-Hub
Improve volume growth
Lucrative Dividend Payout Ratio
Sustainable current income
Income Investing Strategy Growth Investing Strategy

37. THANK YOU