Marico: Profit growth blues in 4QFY01 - Views on News from Equitymaster

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Marico: Profit growth blues in 4QFY01

Apr 24, 2001

Marico Industries announced a 28% jump in net profits for FY01 today. The company's total income however, was marginally up by 2%. But its 4QFY01 net profit was up by a marginal 6%. The company announced a final dividend of 60%, taking the total dividend paid for the year to 100%.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Net Sales 1,700 1,787 5.1% 6,483 6,580 1.5%
Other Income 6 12 105.0% 12 32 162.8%
Expenditure 1,566 1,658 5.9% 5,960 5,989 0.5%
Operating Profit (EBDIT) 134 128 -4.3% 523 591 13.0%
Operating Profit Margin (%) 7.9% 7.2%   8.1% 9.0%  
Interest 5 7 53.2% 32 35 9.3%
Depreciation 24 19 -22.6% 78 89 14.3%
Profit before Tax 111 115 3.2% 426 499 17.3%
Exceptional expenses - -   18 -  
Tax 11 8 -27.6% 51 43 -14.9%
Profit after Tax/(Loss) 101 107 6.4% 357 456 27.7%
Net profit margin (%) 5.9% 6.0%   5.5% 6.9%  
No. of Shares (eoy) (m) 14.5 14.5   14.5 14.5  
Earnings per share* 27.7 29.5   24.6 31.5  
Current P/e ratio         7.0  
*(annualised)

The company is the market leader in the Indian coconut oil and branded refined oil segment. Its brand Parachute dominates the branded coconut oil market with a 54% market share. Marico's presence in the refined oil category is marked by two brands, namely, Saffola (safflower oil) and Sweekar (sunflower oil). These command a combined market share of 13% in the branded edible oil market.

Brand Category Market Share (%)
Parachute Coconut oil 53.6%
Saffola/Sweekar Refined oil 13.1%
Hair & Care Non-sticky hair oils 21.6%
Parachute Lite/Jasmine Value added coconut oils 8.2%
Revive Fabric starch 100.0%
Mediker Anti-lice shampoo 100.0%
Sil Jams 13.0%
Souce: ORG Marg retail data in November 2000

The company improved its performance in volume terms. For FY01, volumes of Marico’s coconut oil franchise (Parachute and Oil of Malabar) grew by 14%, while the refined edible oil franchise (Saffola and Sweekar) grew by 27% YoY.

According to the company, the growth in volumes was, however, not reflected in a similar growth in turnover because of two reasons. Firstly, during the nine months ended December 2000, maximum retail prices (MRPs) of most Marico products were lowered following considerably lower raw material prices. Secondly, the turnover value excludes the turnover recorded by Marico Bangladesh Limited (MBL), a wholly owned subsidiary. During FY00, turnover in Bangladesh was recorded in Marico right until December 1999, when MBL commenced its operations. If we exclude the MBL performance then the company's turnover grew by 15%.

The company's bottomline growth would have been much better but for a slowdown in profitability in the 4QFY01. This is because its expenditure shot up by 6% during the quarter. In the previous 9 months of FY01 its expenditure had actually declined by 1.4% YoY. Marico's staff costs have gone up by a significant 51% in 4QFY01 (YoY) as compared to a 37% jump in FY01.

The company's advertising expenditure has shot up by 36% during FY01. The company's advertising expense to sales was 12% in FY01 as compared to 9% in FY00. The company has had to up its ad budget to fight the slowdown in consumption as well as to fight off the challenge from Hindustan Lever Limited.

At the current price of Rs 221, the stock trades at a P/e multiple of 7 times its FY01 earnings. The markets have taken the slowing growth in Marico's bottomline in 4QFY01 with a pinch of salt.


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