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Marico: Strong volumes boost sales
Apr 28, 2010

Marico Limited has announced its FY10 results. The company has reported a 11.4% YoY and 22.8% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline during 4QFY10 grew by 6.4% YoY. This growth was aided by a strong volume growth during the quarter.
  • Operating (EBITDA) margin grew by 0.8% during the quarter to 14.1%. This increase comes on the back of fall in raw material costs (as a percentage of sales) partly offset by increase in employee costs, increase in advertisement and sales promotion expense and higher other expenditure (as a percentage of sales).
  • Net profit grew by 15% during the quarter aided by higher operating income, higher other income, lower interest costs and a lower extraordinary loss. The net profit was capped due to higher tax expense incurred during the quarter.
  • For FY10, the net profit increased by 22.8% while net profit margins grew by 0.8% to stand at 8.7%. This growth comes on the back of higher operating income, higher other income, lower interest costs and lower extraordinary loss.


Consolidated picture
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 5,660 6,023 6.4% 23,884 26,608 11.4%
Expenditure 4,907 5,173 5.4% 20,844 22,856 9.7%
Operating profit (EBDITA) 753 849 12.8% 3,040 3,751 23.4%
EBDITA margin (%) 13.3% 14.1%   12.7% 14.1%  
Other income 31 53 69.6% 122 183 49.7%
Interest 85 50 -40.8% 357 257 -28.1%
Depreciation 104 157 50.6% 358 601 67.8%
Profit before tax 595 695 16.8% 2,447 3,077 25.7%
Extraordinary items (150) (57)   (150) (98)  
Tax 1 117   409 643 57.2%
Profit after tax/(loss) 444 520 17.3% 1,887 2,335 23.8%
Minority interest (0) 9   (0) 19  
Net profit after tax/(loss) 444 511 15.1% 1,887 2,317 22.8%
Net profit margin (%) 7.8% 8.5%   7.9% 8.7%  
No. of shares (m) 609 609   609 609  
Diluted earnings per share (Rs)*         3.8  
Price to earnings ratio (x)*         29.7  
* trailing twelve month earnings

What has driven performance in 4QFY10?
  • Of the 6.4% growth clocked by Marico, volume growth was 14% signifying deflation in raw material which the company passed on to its customers to build consumer franchise. Parachute rigid packs achieved a volume growth of 10% in volume terms with the market share of coconut oil Parachute, Nihar and Oil of Malabar standing between 51 to 53%. Saffola grew by 13% YoY during the quarter on the back of media campaigns and passing on lower input prices to consumers resulting in 12% increase in households using Saffola. Marico’s portfolio of value added hair oil grew by 27% YoY in volume terms as a result of new launches and relaunches of existing brands at new price points and packaging.

  • International business which comprises 23% of the group turnover grew by 16% YoY during the quarter. However, the growth depressed as a result of currency appreciation. When excluding currency movement the growth is seen higher at 22% YoY. This growth is a result of good overall performance of the company. The company has been facing some pressure on its Kaya business. This is a result of the introduction of service tax by the government. While same store sales declined by 13% YoY during the quarter in India, Kaya ME same store growth came in higher by 17%. Kaya clinics during the quarter to end at a figure of 101 Kaya clinics operational. The turnover for the quarter for Kaya was Rs 450 m while the loss at bottom line level was Rs 53 m. Marico also wound up its Kaya Life operations during the quarter as it was not performing as per expectations.

    Cost break-up
    As a % of sales 4QFY09 4QFY10 FY09 FY10
    COGS 50.4% 43.9% 53.5% 47.4%
    Staff costs 7.6% 14.8% 6.9% 7.1%
    Advertisment costs 9.6% 14.8% 10.2% 13.2%
    Other expenditure 19.1% 19.9% 16.7% 18.1%

  • Operating margins expanded on the back of falling copra prices. The company retained some part of the gain from falling raw material prices while spending the rest on brand building (advertisement and sales promotions grew by 63%). Operating profit was also capped during the quarter as a result of higher staff costs (as a percentage of sales) due to yearend bonus.

  • Net profit grew by 15% YoY while net margins improved by 1.1%. This performance was due to growth in operating income, higher other income and lower interest expense.

What to expect?
At a price of Rs 113, the stock is trading at 24 times our FY12 estimated earnings. The company has performed in line with our estimates. While the company is expected to grow with traction from its international business, 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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