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Marico: Strong performance on volume growth - Views on News from Equitymaster
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Marico: Strong performance on volume growth
Jul 28, 2010

Marico Limited has announced its 1QFY11 results. The company has reported a 13.4% YoY and 31.6% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line during 1QFY11 grew by 13.4% YoY. This growth was aided by a strong volume growth during the quarter.
  • Operating (EBITDA) margin fell by 0.5% during the quarter to 13.3%. This fall comes on the back of higher raw material costs (as a percentage of sales) partly offset by lower advertisement and sales promotion expense and lower staff costs (both as a percentage of sales).
  • Net profit grew by 32% YoY during the quarter aided by higher operating income, higher other income, lower interest costs, lower effective tax rate and the absence of an extraordinary loss.


Consolidated picture
(Rs m) 1QFY10 1QFY11 Change
Net sales 6,967 7,901 13.4%
Expenditure 6,005 6,847 14.0%
Operating profit (EBDITA) 962 1,055 9.7%
EBDITA margin (%) 13.8% 13.3%  
Other income 31 44 43.3%
Interest 87 70 -19.3%
Depreciation 95 120 26.2%
Profit before tax 811 909 12.1%
Extraordinary items (41) -  
Tax 210 162 -23.1%
Profit after tax/(loss) 560 747 33.5%
Minority interest (0) 10  
Net profit after tax/(loss) 560 737 31.6%
Net profit margin (%) 8.0% 9.3%  
No. of shares (m) 609 609  
Diluted earnings per share (Rs)*   4.1  
* trailing twelve month earnings

What has driven performance in 1QFY11?
  • Of the 13.4% growth clocked by Marico, volume growth was 16% 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 14% in volume terms with the market share of coconut oil Parachute, Nihar and Oil of Malabar standing between 51%-53%. Saffola grew by 17.5% YoY during the quarter on the back of media campaigns and increasing concern around health and healthy heart in India. Marico’s portfolio of value added hair oil grew by 27% YoY in volume terms as a result of packaging, restaging, media campaigns and launching packs at penetrative price points.

  • International business which comprises 23% of the group turnover grew by 22% YoY during the quarter. However, the growth depressed as a result of currency appreciation. When excluding currency movement, the growth is seen higher at 29% YoY. This growth is a result of 17% volume growth and 12% value growth. 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 5% YoY during the quarter in India, Kaya clinics ended the quarter at a figure of 99 Kaya clinics operational. The turnover for the quarter for Kaya was Rs 506 m while the loss at PBT level was Rs 47 m.

    Cost break-up
    As a % of sales 1QFY10 1QFY11
    COGS 50.5% 51.0%
    Staff costs 7.0% 6.8%
    Advertisement costs 12.1% 11.9%
    Other expenditure 16.6% 16.9%

  • Operating margins fell on the back of higher raw material costs as a result of rising copra prices. Price of rice bran oil and HDPE were also higher this quarter compared to the same quarter last year. However, lower staff costs and lower advertisement costs helped support the operating margins.

  • Net profits grew by 32% YoY. This performance was due to growth in operating income, higher other income, lower interest costs, lower effective tax rate and the absence of an extraordinary loss. Effective tax rate fell from 26% in 1QFY10 to 18% in FY11 as the company commissioned a plant for manufacturing edible oil in a tax exempt zone. When adjusting for onetime income, the net profit increased by 23% YoY during the quarter.

What to expect?
At a price of Rs 125, the stock is trading at 22.6 times our FY13 estimated earnings (RPro subscribers click here). The company has performed well during the quarter on strong volume growth and is seeing good traction in its edible oil, value added oil and international businesses. However, 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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