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Marico: Food inflation plays spoilsport - Views on News from Equitymaster
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Marico: Food inflation plays spoilsport
Jan 28, 2011

Marico Limited has announced its 3QFY11 results. The company has reported a 22.1% YoY and 11.8% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line during 3QFY11 grew by 22.1% YoY.
  • Operating (EBITDA) margin fell by 2.6% during the quarter to 12.2%. This fall comes on the back of higher raw material costs (as a percentage of sales) partly offset by lower advertisement and sales promotion expense and lower other expenditure (both as a percentage of sales).
  • Net profit grew by 11.8% YoY aided by higher other income, lower interest costs, lower depreciation charge and fall in effective tax rate.
  • For 9mFY11, the company's net profit grew by 19% YoY while the net profit margin improved by 0.2% to stand at 9%. This performance comes on the back of higher other income, lower depreciation charges and fall in effective tax rate. The growth was capped as a result of higher raw material expenses.


Consolidated picture
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 6,696 8,177 22.1% 20,585 23,810 15.7%
Expenditure 5,708 7,180 25.8% 17,682 20,765 17.4%
Operating profit (EBDITA) 988 997 0.9% 2,903 3,044 4.9%
EBDITA margin (%) 14.8% 12.2%   14.1% 12.8%  
Other income 57 69 22.2% 129 185 43.1%
Interest 65 76 18.2% 206 211 2.3%
Depreciation 166 146 -11.7% 444 406 -8.4%
Profit before tax 814 843 3.6% 2,382 2,612 9.7%
Extraordinary items - -   (41) -  
Tax 183 133 -27.1% 526 422 -19.9%
Profit after tax/(loss) 631 710 12.4% 1,815 2,190 20.7%
Minority interest 9 14   10 42  
Net profit after tax/(loss) 622 695 11.8% 1,805 2,148 19.0%
Net profit margin (%) 9.3% 8.5%   8.8% 9.0%  
No. of shares (m) 609 614   609 614  
Diluted earnings per share (Rs)*         4.3  
Price to earnings ratio (x)*         29.4  
* trailing twelve month earnings

What has driven performance in 3QFY11?
  • Of the 22.1% YoY top line growth clocked by Marico, volume growth was 15% YoY while the rest was the result of price hikes to mitigate input price increases. Parachute rigid packs achieved a volume growth of 5% YoY and a value growth of 14% YoY. The market share of coconut oil Parachute, Nihar and Oil of Malabar stood at around 53%. Saffola saw a volume growth of 13% YoY and overall value growth of 24% YoY during the quarter on the back of media campaigns and increasing concern around health and healthy heart in India. Marico’s portfolio of value added hair oil grew by 31% YoY in volume terms as a result of packaging, restaging, media campaigns and launching packs at penetrative price points. Volume market share for value added hair oils now stand at 22% up from 17% four years ago.

  • International business which comprises 23% of the group turnover grew by 33% YoY during the quarter, driven by a 25% volume growth and 8% value led growth. However, the growth was depressed to the extent of 5% as a result of currency appreciation. Kaya business grew by 40% YoY, boosted by the acquisition of Derma Rx. On a like to like basis, Kaya grew by 11% YoY with same store sales growing by 10% YoY. Sales for Kaya stood at Rs 620 m for 3QFY11. Kaya clinics ended the quarter at a figure of 102 Kaya clinics operational.

    Cost break-up
    As a % of sales 3QFY10 3QFY11 9mFY10 9mFY11
    COGS 47.5% 52.7% 48.4% 51.3%
    Staff costs 7.1% 6.8% 7.1% 7.1%
    Advertisement costs 12.7% 11.0% 12.7% 11.7%
    Other expenditure 18.0% 17.3% 17.6% 17.1%

  • Operating margins fell on the back of higher raw material costs as a result of rise in copra prices. Copra prices were higher by 62% in 3QFY11 compared to the same period last year. Price of rice bran oil and HDPE were also higher this quarter compared to the same quarter last year. However, lower staff costs, advertisement costs and other expenditure helped support the operating margins.

  • Net profits grew by 11.8% YoY. This performance was due to higher other income, fall in depreciation and effective tax rates partly offset by flat operating income growth. Effective tax rate fell from 22.5% in 3QFY10 to 15.8% in 3QFY11 as the company commissioned a plant for manufacturing edible oil in a tax exempt zone.

What to expect?
At a price of Rs 128.4, the stock is trading at 23 times our FY13 estimated earnings (RPro subscribers click here). The company has performed well during the quarter on strong volume growth and is seeing good traction in its edible oil, value added oil and international businesses. However, we believe the stock has most of the upside priced in. For this reason, we would advise investors to be CAUTIOUS on this stock.

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