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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) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Net Sales 1,694 1,760 3.9% 4,793 4,907 2.4%
Other Income 7 5 -23.2% 20 18 -8.2%
Expenditure 1,558 1,584 1.7% 4,330 4,385 1.3%
Operating Profit (EBDIT) 137 175 28.5% 463 523 12.8%
Operating Profit Margin (%) 8.1% 10.0%   9.7% 10.7%  
Interest 9 12 31.9% 28 33 18.6%
Depreciation 20 28 38.1% 70 78 10.9%
Profit before Tax 114 140 23.4% 385 430 11.7%
Tax 13 25 98.4% 35 58 62.4%
Profit after Tax/(Loss) 101 115 14.0% 349 372 6.6%
Net profit margin (%) 6.0% 6.6%   7.3% 7.6%  
No. of Shares 14.5 14.5   14.5 14.5  
Diluted Earnings per share* 27.9 31.8   32.1 34.2  
P/E Ratio   8.3     7.7  
*(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.

Brands Category Market Share % Band Rank in Industry
Parachute, Oil of Malabar Coconut Oil 53 to 54 1
Revive Fabric Starch nearly 100 1
Mediker Anti Lice Treatment nearly 100 1
Saffola, Sweekar Refined Edible Oil in consumer packs 12 to 14 2
Hair & Care Non-Sticky Hair Oil 20 to 22 2
Parachute Extensions Value Added Coconut Oils 17 3
SIL Jams 11 to 15 2
Shanti Amla Hair Oil 7 to 10 3
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) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Raw material consumed 870 929 6.8% 2,360 2,514 6.6%
Packing material consumed 185 175 -5.6% 530 539 1.6%
Staff cost 61 80 30.5% 211 240 14.0%
Advertising and sales promotion 210 182 -13.4% 568 438 -22.9%
Other expenditure 232 219 -5.3% 662 654 -1.3%
Total expenditure 1,558 1,584 1.7% 4,330 4,385 1.3%

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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