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Marico: Momentum continues - Views on News from Equitymaster

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Marico: Momentum continues

Jan 22, 2009

Performance summary
  • Topline grows by 23% YoY and 27% YoY respectively during 3QFY09 and 9mFY09.
  • During 3QFY09, Marico reports stable margins at 12.7%. However during 9mFY09, the margins decline by 100 basis points on account of higher raw material and staff costs.
  • Net profits during the quarter improve by 11% YoY, while they are higher by 12% YoY during 9mFY09.

Consolidated picture
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 5,062 6,228 23.0% 14,392 18,273 27.0%
Expenditure 4,420 5,436 23.0% 12,442 15,986 28.5%
Operating profit (EBDITA) 643 793 23.4% 1,950 2,286 17.3%
EBDITA margin (%) 12.7% 12.7%   13.5% 12.5%  
Other income 75 31 -59.2% 88 53 -39.5%
Interest 68 68 -0.9% 204 234 14.9%
Depreciation 107 98 -8.7% 228 254 11.1%
Profit before tax 543 658 21.3% 1,605 1,851 15.3%
Tax 83 148 77.3% 321 408 27.4%
Profit after tax/(loss) 459 511 11.1% 1,284 1,443 12.3%
Net profit margin (%) 9.1% 8.2%   8.9% 7.9%  
No. of shares (m) 609.0 609.0   609.0 609.0  
Diluted earnings per share (Rs)*         3.0  
Price to earnings ratio (x)*         18.8  
* 12 month trailing earnings

What has driven performance in 3QFY09?
  • Marico reported a topline growth of 23% YoY and 27% YoY respectively during both the period under consideration. On a standalone basis, the sales jumped 20% YoY and 24% YoY respectively. Consumer products in India, the international business and Kaya skin solutions showed healthy growth. Volume growth during the quarter was 7% YoY.

  • Parachute coconut oil in rigid packs recorded a volume growth of 9% YoY during 3QFY09. The strong branding helped it maintained its market share at 48%. Nihar’s market share stood at 6% during the 12 months to November ’08 with the brand registering a 9% YoY growth in volume. Marico’s hair oils in rigid packs grew 15%YoY in volume. Decline in competitive product prices coupled with economic slowdown led to a drop in the volume growth of Saffola to 3% YoY. The company has launched new products in the hair oil, health foods and fabric whitener space.

  • Marico added 6 new Kaya clinics in India during the quarter. As of December ’08, the company had 84 clinics. During 3QFY09, Kaya recorded a turnover growth of 59% YoY. Revenue growth in like to like clinics in India during 3QFY09 was 13%.YoY, indicating that the pace of revenue growth for high ticket discretionary items has come off. Marico’s international business grew by 44% YoY during 3QFY09 and now forms 20% of the group’s turnover. Its South African business now constitutes about 10% of its international consumer products turnover. High levels of inflation and slowdown led to de-growth in its Egypt business. Middle East and Bangladesh regions continued to perform well. The company has done better than our expectations.

  • During 3QFY09, Marico reported stable margins at 12.7%. However during 9mFY09, the margins declined by 100 basis points on account of higher raw material and staff costs. Even though some edible oil prices declined during the quarter, the prices of copra and safflower (kardi) oil did not decline. Their prices were higher during the quarter by about 30% YoY and 40% YoY respectively. The staff costs were higher on account of Kaya clinic expansions. However lower ad spends (mainly on account of an absence of any new product launches during the quarter) restricted the fall. Further, the ad spends appeared lower owing to a change in the accounting policy to now reducing consumer offer amounts from both revenue and ASP expenditure. Had it not been for this change, the as spend to sales would have been 11.7%. On a standalone basis, the margins during the quarter improved by 1.3%. The margins are in line with our estimates.

  • Net profits during the quarter improved by 11% YoY, while they were higher by 12% YoY during 9mFY09. Stable margins coupled with lower interest costs and depreciation (due to change in accounting method for a factory building) aided growth during the quarter. During 3QFY08, the company had an exchange rate gain of Rs 78 m and an increased impact of accelerated depreciation of Rs 43 m. The net effect of these two items being a gain of Rs 35 m. Excluding this, the bottomline grew by 20% YoY during the quarter. On a standalone basis, during the quarter, the profits grew by 29% YoY aided by higher operating margins and lower depreciation.

What to expect?
    At the current market price of Rs 58, the stock is trading at a price to earnings multiple of 15.3 times our FY11 estimates. The company continues to report strong performance led by its strong brands and new product launches. The company, along with growing its international business operations, is also planning to improve the supply chain to improve margins in the business. Further, with raw material prices expected to decline, the company may stand to gain. While the company has been keeping a cautiously optimistic outlook on the near term future, on account of Marico’s product offerings being largely in the area of items of daily consumption, the slowdown impact would be limited. We have factored this in our estimates. We remain positive on the stock.

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Mar 22, 2019 11:47 AM