Marico Kaya Initiating Coverage Report by HDFC Sec

A pioneer in cosmetic dermatology, Kaya remains unchallenged in the organised skin clinic space in India. Management is confident of 20% revenue CAGR over the next 3-5 years, a claim that looks surpassable. A new found focus on product sales adds synergies to its story. Kaya turned profitable in FY14 (after 11 years of losses) and has significant untapped operating leverage in its operations.

The business model is unique and impregnable. Hardly any long term capital is required as operations require negative working capital. Cash of Rs 1.8bn post demerger (from Marico) and improving OCF are adequate to fund growth over the next 3-4 years. By then, operations may well spew enough cash to continuously expand Kaya’s footprint in a grossly underpenetrated space.

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