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Marico: Undeterred by slowdown - Views on News from Equitymaster
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Marico: Undeterred by slowdown
Apr 22, 2009

Performance summary
  • Consolidated topline grows by 25% YoY on account of strong growth across its divisions during FY09. Standalone sales are higher by 22% YoY led by a 20% YoY growth in the domestic consumer division.
  • Witnesses stable margins during the full year on both the consolidated and standalone accounts, led by price hikes to offset higher input prices.
  • Excluding the extra-ordinary items consolidated net profit during FY09 increases by 16% YoY.
  • Plans to divest its entire stake in Sundari LLC to US based Wellness Systems.


Consolidated picture
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 4,659 5,612 20.5% 19,050 23,884 25.4%
Expenditure 4,203 4,879 16.1% 16,588 20,864 25.8%
Operating profit (EBDITA) 456 732 60.7% 2,463 3,020 22.6%
EBDITA margin (%) 9.8% 13.1%   12.9% 12.6%  
Other income 52 80 53.7% 96 142 48.8%
Interest 87 113 29.9% 305 357 17.1%
Depreciation 79 104 31.9% 307 358 16.5%
Profit before tax 341 594 74.2% 1,946 2,447 25.8%
Extraordinary items 106 (150)   106 (150)  
Tax 39 1 -97.7% 360 409 13.8%
Profit after tax/(loss) 408 444 8.6% 1,692 1,887 11.5%
Minority interest       1 (1)  
Net profit after tax/(loss) 408 444 8.6% 1,691 1,888 11.7%
Net profit margin (%) 8.8% 7.9%   8.9% 7.9%  
No. of shares (m) 609.0 609.0   609.0 609.0  
Diluted earnings per share (Rs)*         3.1  
Price to earnings ratio (x)*         21.9  
* 12 month trailing earnings

What has driven performance in FY09?
  • Marico’s strong 25% YoY growth in consolidated sales during FY09 shows the company’s branding power inspite of the slowdown witnessed in discretionary spending. Further, with its product portfolio comprising of daily consumption items at affordable price points, the company witnessed robust volume growth of 12% YoY. On the standalone front, the topline grew by 22% YoY. The company has outperformed our revenue estimates by 8% for the full year. Domestic consumer division grew by 20% YoY led by a 9% YoY jump in Parachute volumes and 11% volume growth in Saffola volumes. Marico’s hair oils franchise in rigid packs grew by 17% during the year.

  • Marico’s international business (19% of total sales) reported a 43% YoY growth in sales during FY09. Its skincare clinic brand ‘Kaya’ saw a 57% YoY growth with same clinics reporting a growth of 18% YoY. It added 20 clinics during the year to totaling up to 85 clinics across the globe. Though the segment reported losses of Rs 13 m on account new investments, the company expect it to turn profitable as it has sufficient existing clinics base to absorb the losses. It expects to roll out another 12 to 15 new clinics this year. It is planning to divest its entire stake in Sundari LLC to the US based Wellness Systems. The move as per the management is logical as Sundari constituted only a small share of Marico’s revenue Further, US (Sundari’s base) has not been a focus area of Marico and hence it is planning to divest the stake.

    Segment Revenue
    Rs m 4QFY08 4QFY09 Change FY08 FY09 Change
    FMCG 4,337 5,163 19.1% 17,938 22,201 23.8%
    % of total revenue 93.1% 92.0%   94.2% 93.0%  
    Others 322 448 39.2% 1,113 1,683 51.2%
    % of total revenue 6.9% 8.0%   5.8% 7.0%  
    Total 4,659 5,612 20.5% 19,050 23,884 25.4%

  • Marico witnessed stable margins during FY09 on both the consolidated and standalone basis. Copra prices were higher by 25% YoY, while safflower oil prices increased by 35% YoY. The company had however taken price hikes to offset the higher input prices. Further, even its advertisement costs were lower as a percent of sales (change in accounting policy to reduce consumer offer amounts from revenues and advertisement spends), thereby maintaining the margins. For the full year, the margins are in line with our estimates. During the quarter, the margins improved by more than 3% for both the entities. This was mainly on account of input prices declining from their peaks during the end of the year. Going forward, the company expects the advertisement spends to be around 12% of sales. It also expects the key input prices to be lower than FY09.

  • Excluding the extra-ordinary items (profit of Rs 106 m on sale of Sil business in FY08, and Rs 155 m as impairment charges for the purpose of consolidation on account of Sundari sale), the consolidated net profit during FY09 increased by 16% YoY.

What to expect?
At the current market price of Rs 68, the stock is trading at a multiple of 17.9 times our FY11 earnings estimates. As indicated by the management, Marico plans to continue its focus on long term sustainable growth with a mix of expanding its existing franchises through new offerings, new regions and brand spends. Further with raw material prices declining, the company expects better margins. However, though the growth would continue, the management has indicated of being cautious on account of higher base and uncertain economic conditions and currency fluctuations. While we remain positive on the broader prospects of the company, the stock’s valuations are on the higher side and as such we would advice you to practice caution.

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