X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Marico: Robust sales but margins flat - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Marico: Robust sales but margins flat

Aug 9, 2014

Marico Limited has announced its first quarter results for financial year 2014-15 (1QFY15). The company has reported a 17% YoY increase in sales and 17% YoY rise in net profits. Here is our analysis of the results.

Performance summary
  • Revenues excluding the Kaya business grew by 25% YoY on a 5% volume growth.
  • The company has barely managed to maintain operating margin as lower staff costs and other expenses has offset steep rise in raw material costs.
  • The net margin remained flat at 11.4% as reduced interest charges has been offset by higher tax outgo during the quarter.

Consolidated picture
(Rs m) 1QFY14 1QFY15 Change
Total income 13,824 16,231 17.4%
Expenditure 11,527 13,565 17.7%
Operating profit (EBDITA) 2,297 2,666 16.1%
EBDITA margin (%) 16.6% 16.4% -0.2%
Other income 139 183 31.4%
Interest 121 70 -41.8%
Depreciation 206 204 -1.1%
Profit before tax 2,109 2,576 22.1%
Extraordinary items 24 -  
Tax 512 678 32.4%
Profit after tax/(loss) 1,621 1,897 17.0%
Minority interest 44 44  
Net profit after tax/(loss) 1,577 1,853 17.5%
Net profit margin (%) 11.4% 11.4% 0.0%
No. of shares (m)   645  
Diluted earnings per share (Rs)*   7.5  
Price to earnings ratio (x)*   30.5  
* trailing twelve month earnings

What has driven performance in 1QFY15?
  • Marico clocked a 25% topline growth, excluding Kaya that got demerged effective 1st April 2013, backed by 28% growth in the domestic business and 16% rise in International business. Growth in the domestic business was led by double-digit growth across product categories. Among product segments, Parachute's rigid portfolio posted a strong growth of 41% driven largely by realizations which were up by 33% during the quarter. The volume growth has been muted at 6%. The Saffola edible oil franchise grew by 15% driven by 10% growth in offtake. The value added hair oils registered a 28% growth on a recovered volume growth of 11%. The acquired portfolio of Paras brands recorded a flat growth on a high base effect. Due to subdued offtake of coconut hair oil the overall volume growth for domestic business has slightly improved to 6% for the quarter.

  • Marico's international business recorded growth of 16% on a constant currency growth of 9.6%. The growth was aided by 14% and 18% (constant currency) growths registered in Bangladesh and Middle East and North Africa (MENA). Even the South African business grew by 9% during the quarter amidst challenging conditions of high inflation & interest rates, rupee depreciation, unemployment and sluggish demand. Even the business in Veitnam was flat due to economic slowdown.

    Cost break-up
    As a % of sales 1QFY14 1QFY15 gain/decline in basis points
    Raw material cost 48.5% 54.9% 635.66
    Staff costs 7.7% 5.3% -238.98
    Advertisement costs 12.7% 11.8% -90.17
    Other expenditure 14.4% 11.6% -287.72

  • Due to steep commodity inflation, the company has hardly managed to maintain operating margin during the quarter. During the quarter, price of largest input copra was higher by 131%. Even the prices of liquid paraffin and rice bran oil were higher by 14% and 12%, respectively. Only the price of safflower oil was lower by 24%. As a result, raw material to sales ratio has registered a jump of 6.4% during the quarter. This was partially offset by lower staff costs and other expenses. Even ad-spends to sales ratio was down by 0.9% for the quarter.

  • The net margin remained flat as reduction in interest charges has been offset by higher tax outgo. Excluding the impact of extraordinary income of Rs 24 m arising from the Kaya demerger in the year-ago quarter, the net margin shows a slight improvement to 11.4%.
What to expect?
Marico has been reporting faster growth in rural sales thanks to its efforts of increasing direct rural reach by 25% to 50,000 villages in the last two years. Presently rural sales account for 30% of overall sales. The company wants to raise rural contribution to 35% over the next two years. At the same time, Marico has increased direct coverage in top six towns by 60%. While in domestic markets Marico wants to focus on value-added products, the thrust in the international markets will be to cross-pollinate male grooming, hair nourishment and hair colour products.

At a price of Rs 270, the stock is trading at 23 times our FY17 estimated earnings. We had a given a SELL on this stock. At current price levels, the stock is overpriced. Therefore we maintain a SELL on the stock.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2019
Get our special report, Zero To Millions
(2019 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARICO LTD SHARE PRICE


Dec 19, 2018 (Close)

TRACK MARICO LTD

  • Track your investment in MARICO LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

COMPARE MARICO LTD WITH

MARKET STATS