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Marico: Keeping the shine intact - Views on News from Equitymaster
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Marico: Keeping the shine intact
Jul 23, 2009

Performance summary
  • Revenues grow by 17% YoY on the back of strong consumer product sales.
  • Operating profits (EBITDA) grew by 27% YoY; operating margins improved to 13.8%, up from 12.7% in 1QFY09. This was mainly due to cost of goods sold falling from 54.1% of sales to 50.3% of sales.
  • Net profits grew by 21% during the quarter. However, if we exclude the exceptional items due an impairment loss on sale of ‘Sundari’ - its beauty brand in the US - net profits have actually grown by 30% YoY during 1QFY10.


Consolidated financial performance snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 5,966 6,967 16.8%
Expenditure 5,209 6,003 15.2%
Operating profit (EBDITA) 757 964 27.4%
EBDITA margin (%) 12.7% 13.8%  
Other income 26 31 20.1%
Interest 96 86 -10.2%
Depreciation 74 99 33.2%
Profit before tax 612 810 32.3%
Exceptional Items - 41  
Tax 149 210 40.9%
Profit after tax/(loss) 463 559 20.7%
Net profit margin (%) 7.8% 8.0%  
No. of shares (m) 609.0 609.0  
Diluted earnings per share (Rs)*^   3.6  
Price to earnings ratio (x)*^   24.7  
* 12 month trailing earnings   ^ Not inclusive of exceptional items

What has driven growth in 1QFY10?
  • Of the 17% revenue growth clocked by Marico, volume growth was 14% and the balance 3% came from increase in value. Sales in the Indian market grew by 8%. The value growth was negative indicating that volumes grew by more than 8%. Sales of Parachute oil grew by 14%. This was entirely a volume led growth aided by sales promotion by the company. Sales of Saffola grew by 13%. Of this 12% growth was from increase in volumes and the balance 1% due to value growth. This growth is a positive sign as the brand was growing in single digits in H2FY09 due to it being priced at a price premium of 50% compared to its competitors. The company had taken a price cut of 10% bringing the differential down to 25%. This has resulted in the brand bouncing back.

  • International business which comprises 21% of the group turnover grew by 63%. Of this volume and value growth contributed 20% each while the remaining 23% was due to currency effect. The company opened 12 Kaya Skin clinics this quarter out of a target of 15 clinics for the year. This brings the total Kaya clinics to 97 (84 in India and 13 in the Middle East). Kaya achieved a turnover of Rs 440 m for the quarter, a growth of 26% YoY. Of this, 6% growth has been contributed by increase in same store sale. The growth in same store sale in India has been flattish while in the Middle East it has been more than 12%.

  • 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 27%). The company has made a provision if Rs 480 m for excise duty payment. Had the company not made this provision, the operating margins would have been higher at 21%, in line with our estimates.

  • While the PBT registered an impressive 32% YoY growth backed by a stron performance at the operating level and lower interest costs, growth in net profits was nevertheless relatively lower at 21% YoY due to higher tax expenses.

What to expect?
At the current price of Rs 88, the stock is trading at a multiple of 17.7 times our estimated FY12 earnings. For now we are keeping to our estimates for the year. We see growth coming from the international business and from increase in volumes in the domestic market. Going forward we would like to wait and watch how the excise duty case pans out as it is in its early stages. The company has indicated that incase of bad monsoons, the company will not be effected in a major way as only 25% of total sales is from rural areas. Moreover, the company is cautious in case of Kaya as this segment is part of a discretionary spending platform.

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