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Marico: International operations boost sales - Views on News from Equitymaster

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Marico: International operations boost sales

Jan 28, 2010

Performance summary
  • Topline during 3QFY10 grew by 8% YoY. This growth comes from the company’s international business.
  • Operating (EBITDA) margin grew by 2% during the quarter to 14.8%. This increase comes on the back of fall in raw material costs partly offset by increase in employee costs, increase in advertisement and sales promotion expense and higher other expenditure.
  • Net profit grew by 22% during the quarter.
  • For 9mFY10, the net profit increased by 25% while net profit margins grew by 0.9% to stand at 8.8%. This increase is aided by growth in operating income, higher other income and lower interest expense.

Consolidated picture
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 6,210 6,696 7.8% 18,225 20,585 13.0%
Expenditure 5,419 5,708 5.3% 15,938 17,683 10.9%
Operating profit (EBDITA) 791 988 24.8% 2,287 2,902 26.9%
EBDITA margin (%) 12.7% 14.8%   12.5% 14.1%  
Other income 43 56 30.3% 91 130 42.8%
Interest 80 64 -20.3% 272 206 -24.1%
Depreciation 98 166 69.9% 254 444 74.8%
Profit before tax 657 814 24.0% 1,852 2,382 28.6%
Extraordinary items - -   - (41)  
Tax 148 183 23.9% 408 526 28.8%
Profit after tax/(loss) 509 631 24.0% 1,443 1,815 25.7%
Minority interest 0 9 9180.8% 0 10 2678.8%
Net profit after tax/(loss) 509 622 22.2% 1,443 1,805 25.1%
Net profit margin (%) 8.2% 9.3%   7.9% 8.8%  
No. of shares (m) 609 609   609 609  
Diluted earnings per share (Rs)*         3.7  
Price to earnings ratio (x)*         26.5  
* trailing twelve month earnings

What has driven performance in 3QFY10?
  • Of the 8% revenue growth clocked by Marico, volume growth was 14% which signifies correction in retail prices as a result of deflationary environment. Parachute rigid pack achieved a volume growth of 8% during the quarter with the market share of coconut oil including Parachute, Nihar and Oil of Malabar standing at 53.4%. Saffola brand registered a growth of 18% aided by a 20% extra on select SKUs of Saffola Gold and Saffola Active. Moreover, the company reduced the price of Saffola this quarter to cut down the premium between Saffola and its competitors. Marico’s portfolio of value added hair oil grew by 10% YoY during the quarter aided by strong sales of Parachute Advansed Ayurvedic Hot Oil.

  • International business which comprises 23% of the group turnover grew by 24% YoY. Of this, value growth was higher at 28%. However, the overall growth of this segment was brought down due to the currency effect. The company opened two Kaya clinics during the quarter to end at a figure of 101 Kaya clinics operational. The turnover for the quarter was Rs. 440 m, an increase in sales of 10% over the corresponding quarter last year.

  • Operating margins expanded on the back of falling copra prices. The company retained some part of the gain from falling raw material prices while spending the rest on brand building (advertisement and sales promotions grew by 35%). The company has made a provision of Rs 110 m for excise duty payment during the quarter. Had the company not made this provision, the operating margins would have been higher at 16.4%.

  • Net profit grew by 22% YoY while net margins improved by 1.1%. This performance was due to growth in operating income, higher other income and lower interest expense.

What to expect?
At a price of Rs. 98, the stock is trading at 21.3 times our FY12 estimated earnings. The company has a portfolio of strong brands which have shown resilience over a long period of time. Going forward the company has indicated that it will not expand the Kaya network in India for some time as they want to consolidate the business. The company is looking to grow organically and we believe the company has good long term prospects. However, we believe the valuations at this stage look expensive from a medium term prospective.

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