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Marico: FY14 starts on a strong note - Views on News from Equitymaster
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Marico: FY14 starts on a strong note
Aug 21, 2013

Marico Limited has announced its first quarter results for financial year 2013-14 (1QFY14). The company has reported a 9% YoY growth in sales and 27% YoY rise in net profits. Here is our analysis of the results.

Performance summary
  • Topline grew by 9% driven by 7% growth in the domestic business and 15% rise in the overseas operations.
  • Operating margin expanded by 1.9% backed by easing commodity prices.
  • Net profits grew by 27% on a 23% rise in operating profit and lower interest charges.
(Rs m) 1QFY13 1QFY14 Change
Total income 12,703 13,824 8.8%
Expenditure 10,834 11,527 6.4%
Operating profit (EBDITA) 1,870 2,297 22.8%
EBDITA margin (%) 14.7% 16.6%  
Other income 119 139 17.0%
Interest 135 121 -10.5%
Depreciation 193 206 6.6%
Profit before tax 1,660 2,109 27.0%
Extraordinary items - 24  
Tax 403 512 27.3%
Profit after tax/(loss) 1,258 1,621 28.9%
Minority interest 19 44  
Net profit after tax/(loss) 1,238 1,577 27.4%
Net profit margin (%) 9.7% 11.4%  
No. of shares (m)   645  
Diluted earnings per share (Rs)*   6.7  
Price to earnings ratio (x)*   31.8  
* trailing twelve month earnings

What has driven performance in 1QFY14?
  • Marico clocked a 9% revenue growth driven by 10% increase in offtake. The domestic business recorded a subdued growth of 7% on the back of price correction of 3-5% taken in Parachute. Even sales of Parachute in Maharashtra were adversely impacted by strike against Local Body Tax (LBT). As a result Parachute coconut oil (rigid packs) saw a value de-growth of 3% on a 4% rise in volumes during the quarter. However, value-added hair oils portfolio grew by 19% on 16% higher offtake. The company has over 27% market share in the rapidly growing value-added hair oil market. The Saffola edible oil franchise returned back to double-digit volume growth (10%) after a year aided by price reduction of 2-3% initiated in 4QFY13.

  • International FMCG business reported a 15% growth on a 9% volume growth. Barring markets in Middle East and South Africa, all other markets registered good growth. In Bangladesh, the company posted a strong growth of 16% on double-digit volume growth in Parachute. Even Vietnam saw a 26% growth during the quarter. The Middle East and North Africa business remained flat whereas the South Africa business declined due to the economic downturn. The Kaya skin care solutions business reported a 8% growth during the quarter.

    Cost break-up
    As a % of sales 1QFY13 1QFY14 gain/decline in basis points
    Raw material cost 50.9% 48.5% -238.28
    Staff costs 7.5% 7.7% 19.64
    Advertisement costs 12.3% 12.7% 47.30
    Other expenditure 14.6% 14.4% -18.35

  • Benign commodity prices resulted in 1.9% expansion in operating margin during the quarter. While, copra prices were up by 8%, prices of safflower oil and rice bran oil were down by 3% and 20%, respectively (all on a YoY basis). Thus raw material-to-sales ratio fell by 2.4% during the quarter. However, ad-spends to sales remained high at 12.7%. The domestic business segment reported a marginal improvement of 0.3% in EBIT margin to 20.1%. %. The international business saw its EBIT margin expand by 4.2% to 10.9%. The Kaya business turned in the black clocking an EBIT of Rs 30.6 m during the quarter.

  • Net profits grew by a robust 27.4% aided by 22.8% rise in operating profit and 10.5% reduction in interest charges. Even depreciation outgo grew by a modest 6.6% during the quarter.
What to expect?

Marico witnessed a recovery in sales from the overseas markets in 1QFY14. Even in the domestic markets, Saffola sales witnessed a rebound aided by price correction taken earlier. However, Parachute sales were affected by the LBT strike and the price reductions taken during the quarter. But the value-added hair oils portfolio recorded strong growth. Marico wants to introduce new products in the established value-added hair oils brands. The company wants to participate in all sub-segments to have a wider portfolio to drive growth.

With copra prices inching upwards and competition intensifying in the premium refined edible oil market, the company’s profitability can come under pressure going ahead.

At a price of Rs 212, the stock is trading at 26 times our FY15 estimated earnings. We had a given SELL on this stock. At current price levels, the stock continues to remain overvalued and we re-iterate a SELL on the stock.

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