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Marico: Focus paying off

Mar 27, 2002

Edible oil major, Marico Industries, has recently declared its third quarter FY02 results. During this quarter the company posted nearly 4% growth in sales YoY and a 14% growth in net profits. On a consolidated nine month basis, Marico declared over 2% growth in topline and a marginal 7% growth in net profit.

(Rs m)3QFY013QFY02Change9m FY019m FY02Change
Net Sales1,6941,7603.9%4,7934,9072.4%
Other Income75-23.2%2018-8.2%
Expenditure1,5581,5841.7%4,3304,3851.3%
Operating Profit (EBDIT)13717528.5%46352312.8%
Operating Profit Margin (%)8.1%10.0%9.7%10.7%
Interest 91231.9%283318.6%
Depreciation202838.1%707810.9%
Profit before Tax11414023.4%38543011.7%
Tax132598.4%355862.4%
Profit after Tax/(Loss)10111514.0%3493726.6%
Net profit margin (%)6.0%6.6%7.3%7.6%
No. of Shares 14.514.514.514.5
Diluted Earnings per share*27.931.832.134.2
P/E Ratio8.37.7
*(annualised)

At first glance the turnover growth looks discouraging. However, according to the company, the volume growth was significant, but due to lower product prices, the value figures were depressed. Infact, during April-December 2001, the non-fabric care products (meaning coconut oil and hare care products) grew by 12%. Fabric care volumes (Revive) also rose by a healthy 29%, albiet on a smaller base.

But in the refined oil category Marico witnessed a de-growth in Sunflower oil segment. Post Union Budget 2001, the custom duty rate on imported sunflower oil increased substantially (to 75%) while duty hike for other oils like soya (45%) was not so steep. This resulted in the relative price of sunflower oil being higher than other oils, resulting in a shift in the consumer preference towards cheaper oils. Marico however, focused on maintaining the margins on its sunflower oil brand. Consequently, there has been de-growth in Sweekar sales volumes, leading to a fall in Marico's overall refined oil market share. Saffola franchise however, recorded a rise of 10% in volumes.

BrandsCategoryMarket Share % BandRank in Industry
Parachute, Oil of MalabarCoconut Oil53 to 541
ReviveFabric Starchnearly 1001
MedikerAnti Lice Treatmentnearly 1001
Saffola, SweekarRefined Edible Oil in consumer packs12 to 142
Hair & CareNon-Sticky Hair Oil20 to 222
Parachute ExtensionsValue Added Coconut Oils173
SILJams11 to 152
ShantiAmla Hair Oil7 to 103
Source: ORG urban Retail Market Research and company release

The realisations of Parachute coconut oil were lower in 1HFY02. For example, the maximum retail price (MRP) of the largest selling pack (200 ml bottle) in 1HFY02 was lower at Rs 22.75, as compared to Rs 26 per bottle during 1HFY01. Added to that, sales of P&G (Proctor and Gamble) products fell, primarily because P&G withdrew the brands, Clearasil/Ultra Clearasil (divested) and Camay Soap (discontinued) from the distribution agreement.

Cost-breakup
(Rs m)3QFY013QFY02Change9m FY019m FY02Change
Raw material consumed8709296.8%2,3602,5146.6%
Packing material consumed185175-5.6%5305391.6%
Staff cost618030.5%21124014.0%
Advertising and sales promotion210182-13.4%568438-22.9%
Other expenditure232219-5.3%662654-1.3%
Total expenditure1,5581,5841.7%4,3304,3851.3%

At the current market price of Rs 265 the stock trades at a P/e multiple of 8x annualised 9m FY02 earnings and a market cap to sales ratio of 0.6x. The valuations are on the lower side of the FMCG spectrum. Given the company's focus on the edible oil business and its ability to maintain its market share and growth despite HLL's entry into the segment, the company should have been rated higher. Also, the company has a consistent dividend paying track record. In FY02 till date the company has declared Rs 9 per share as interim dividend.

But concerns are that in these difficult market conditions, Marico, may continue to face pressure of pricing power. Though during 9m FY02, its expenditure has been under control due to lower advertising costs, competitive pressures and a difficult market may see an escalation in these costs in the coming quarters.

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