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Marico: Slowdown foreseen - Views on News from Equitymaster
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Marico: Slowdown foreseen
Oct 21, 2008

Performance summary
  • Topline grows by 30% YoY on the consolidated basis, while the standalone sales are up 26% YoY.

  • Marginal decline (1.6%) in operating margins for both the period under consideration on the consolidated basis on account of higher input prices.

  • Consolidated net profit grows by 11.5% YoY and 13.2% YoY during 2QFY09 and 1HFY09 respectively.



Consolidated picture
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 4,638 6,035 30.1% 9,329 12,044 29.1%
Expenditure 3,991 5,296 32.7% 8,022 10,549 31.5%
Operating profit (EBDITA) 647 739 14.1% 1,307 1,495 14.4%
EBDITA margin (%) 14.0% 12.2%   14.0% 12.4%  
Other income 5 12 139.2% 12 22 83.5%
Interest 65 87 33.8% 136 167 23.0%
Depreciation 64 82 27.5% 122 156 28.6%
Profit before tax 524 582 11.3% 1,062 1,194 12.4%
Extraordinary item - -   - -  
Tax 101 111 10.3% 237 261 9.8%
Profit after tax/(loss) 423 471 11.5% 825 934 13.2%
Net profit margin (%) 9.1% 7.8%   8.8% 7.8%  
No. of shares (m) 609.0 609.0   609.0 609.0  
Diluted earnings per share (Rs)*         3.0  
Price to earnings ratio (x)*         18.3  
* 12 month trailing earnings

What has driven performance in 2QFY09?
  • Marico reported a topline growth of 30% YoY on the consolidated basis, while the standalone sales were up 26% YoY. While the organic volume growth was 11% YoY, the inorganic growth of 3% was accompanied by price led growth of 16% YoY. The consumer division grew by 26% YoY in 2QFY09, while 145% YoY jump was witnessed in others. The standalone numbers now contributed 82% to the consolidated sales (84% in IHFY08) indicating faster growth by international regions.

  • Marico’s flagship brand ‘Parachute’ continued to maintain its leadership market share in India. During the 12 months upto August 2008, it had a volume market share of 48% in the Rs 13 bn branded coconut oil category. During 2QFY09, Parachute coconut oil sales in smaller packs recorded a volume growth of 12% YoY. Saffola refined edible oils franchise grew by 9% YoY in volume, while the non-sticky hair oil sales grew by 23% YoY in volume during the quarter.

    Segment Revenue
    Rs m 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
    FMCG 4,466 5,613 25.7% 8,825 11,242 27.4%
    % of total revenue 96.3% 93.0%   94.6% 93.3%  
    Others 172 422 144.9% 504 802 59.2%
    % of total revenue 3.7% 7.0%   5.4% 6.7%  
    Total 4,638 6,035 30.1% 9,329 12,044 29.1%

  • Marico’s overall international business grew by 59% YoY during 2QFY09. This includes the acquisition made in South Africa during 3QFY08. The international business, excluding turnover from South Africa grew by 41% YoY. While Bangladesh and Middle East regions performed well, Egypt witnessed a flat growth on account of higher inflation and change in scheme of distribution. The company now has 77 clinics under its Kaya venture. Kaya witnessed a 67% YoY growth during the quarter.

  • The company booked a mark to market (MTM) losses to the tune of Rs. 70 m on forex exposures accounted during the quarter, thereby increasing the other expenses. The margins are in line with our estimates. The bottomline growth for the quarter would have been higher by 24% had it not been for the MTM loss. The standalone profits were higher by 8% YoY during 1HFY09 and now contribute 90% to the consolidated profits (94% in 1HFY08).

What to expect?
At the current market price of Rs 54, the stock is trading at a price to earnings multiple of 13.8 times our FY11 estimates. The company has done better on the topline and bottomline front as compared to our full year estimates. Marico is expecting a reduction in revenue growth in the coming quarters on account of short term down-trading to cheaper brands and some curtailment in discretionary spends due to recent credit crisis. Further on account of price hikes taken to offset the rising input prices, revenue growth is expected to be impacted. On the margin front, while pressure was seen, as per the management, the company will attempt to maintain absolute unit margins across its portfolio. When inflationary pressure reduces, it is likely that the margins would get restored.

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