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Marico: Strong profitable growth

Aug 6, 2012

Marico Limited has announced its first quarter results for financial year 2012-13 (1QFY13). The company has reported a 22% YoY growth in sales and 46% YoY rise in net profits. Here is our analysis of the results.

Performance summary
  • Backed by a strong underlying growth of 14%, topline increased by 22% YoY. All the three business divisions reported robust double-digit growth during the quarter.
  • Aided by waning commodity inflation, the company has been able to overcome the steep rise in adspends and clock a 260 basis points expansion in operating margin.
  • Earnings surged by 46% on the back of 48% jump in operating profit.

Consolidated picture
(Rs m) 1QFY12 1QFY13 Change
Net sales 10,433 12,703 21.8%
Expenditure 9,163 10,824 18.1%
Operating profit (EBDITA) 1,270 1,879 48.0%
EBDITA margin (%) 12.2% 14.8%  
Other income 73 145 99.2%
Interest 98 170 73.7%
Depreciation 169 193 14.4%
Profit before tax 1,075 1,660 54.4%
Extraordinary items - -  
Tax 210 403 91.4%
Profit after tax/(loss) 865 1,258 45.4%
Minority interest 15 19  
Net profit after tax/(loss) 850 1,238 45.7%
Net profit margin (%) 8.1% 9.7%  
No. of shares (m)   645  
Diluted earnings per share (Rs)*   5.7  
Price to earnings ratio (x)*   33.1  
* (Book value as on 31st June 2012)

What has driven performance in 1QFY13?
  • Marico posted a robust topline growth of 22% driven by a strong 16% volume growth in the domestic consumer products business. This business contributes 69% to consolidated revenues. Among product categories, value-added hair oils grew the fastest at 33% led by 25% rise in offtake. Even Parachute coconut oil registered a 22% rise in turnover on 18% volume growth. However, Saffola volumes grew by a relatively subdued 12% with price hikes contributing to an overall 20% growth. International business that contributes 24% to overall sales grew by 17% during the quarter. Barring Bangladesh and MENA. business in all geographies grew in double-digits during the quarter. The Bangladesh region which has been facing tough macroeconomic environment on account of demand slowdown, high inflation and currency depreciation saw a 2% decline in revenues. The MENA region has been limping back to normalcy from the political turmoil and reported a 5% growth in its business for the quarter. The specialized skin-care business 'Kaya' reported same store sales growth of 12%. In May 2012, Marico integrated the personal care business of Paras Pharmaceuticals with itself and the qtrly results include a miniscule Rs 100 m of inorganic sales.

    Cost break-up
    As a % of sales 1QFY12 1QFY13 gain/decline in basis points
    Raw material cost 57.1% 50.5% -658.60
    Staff costs 6.8% 7.5% 69.66
    Advertisement costs 9.3% 12.3% 294.75
    Other expenditure 14.7% 15.0% 32.14

  • The improvement in operating performance that started in the last quarter of FY12 has continued in FY13 on falling commodity prices. In 1QFY13, average copra prices were 40% lower resulting in a 659 basis points drop in the cost of goods sold to sales ratio. This has more than offset the 295 basis points jump in ad spends and a 100 basis points increase in staff costs and other expenditure (all as a percentage of sales). As a result the overall operating margin expanded by 260 basis points to 14.8%. Among business segments, domestic consumer care expanded EBIT margin by 1.8% to 19.8% whereas EBIT margin of International operations reduced by 0.7% to 6.7%. Skin care continued to remain in red reporting an EBIT loss of Rs 72.5 m for the quarter.

  • The steep jump in the company's operating profit has percolated at the net level. In compliance with Schedule VI requirements, the interest income earned has been reported separately resulting in a 99% surge in other income and 73% jump in interest cost. Although depreciation outgo increased at a modest pace, the tax outgo increased by 91% due to a 400 basis points increase in the tax incidence for the quarter. Earnings were up by 46%.

What to expect?
Marico has recorded a superlative financial performance in the first quarter of FY13. As per the company, strong growth in offtake of Parachute and other value-added hair oils is likely to moderate in the coming quarters. Even the benefit of waning commodity inflation is unlikely to continue as it expects copra prices to go up in future. Therefore, the company says that it is more likely to return to the secular trend of clocking operating margin of around 13% as compared to margin of 15% earned in 1QFY13.

At a price of Rs 190, the stock is trading at 16 times our FY15 estimated earnings. However the current financials do not provide any major upside. We therefore maintain a SELL on the stock.

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Jun 11, 2021 (Close)