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Marico: Volume growth boosts performance

Oct 26, 2010

Marico Limited has announced its 2QFY11 results. The company has reported a 12.5% YoY and 14.8% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line during 2QFY11 grew by 12.5% YoY. This growth was aided by a strong volume growth during the quarter.
  • Operating (EBITDA) margin fell by 0.5% during the quarter to 12.7%. 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 other expenditure (both as a percentage of sales).
  • Net profit grew by 15% YoY aided by higher other income, lower interest costs, lower depreciation charge and fall in effective tax rate.
  • For 1HFY11, the company’s net profit grew by 25% while the net profit margin improved by 0.8% to stand at 9.3%. This performance comes on the back of higher other income, lower depreciation charges and fall in effective tax rate. The growth was capped as a result of higher raw material process.
  • Marico has declared an interim dividend of Rs 0.3 per share.

(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 6,922     7,788 12.5% 13,889 15,689 13.0%
Expenditure 5,969     6,795 13.8% 11,975 13,642 13.9%
Operating profit (EBDITA)    953         993 4.2%    1,914    2,047 6.9%
EBDITA margin (%) 13.8% 12.7%   13.8% 13.0%  
Other income       42           71 71.4%         73       116 59.4%
Interest       55           65 17.5%       142       135 -5.0%
Depreciation    182         140 -23.5%       278       260 -6.5%
Profit before tax    757         860 13.6%    1,567    1,768 12.8%
Extraordinary items        -              -            (41) -    
Tax 133 126 -4.8% 343 288 -16.0%
Profit after tax/(loss) 624 733 17.5% 1,184 1,480 25.0%
Minority interest 1 18   1 27  
Net profit after tax/(loss) 624 716 14.8% 1,183 1,453 22.8%
Net profit margin (%) 9.0% 9.2%   8.5% 9.3%  
No. of shares (m) 609 614   609 614  
Diluted earnings per share (Rs)*         4.2  
Price to earnings ratio (x)*         32.3  
* trailing twelve month earnings

What has driven performance in 2QFY11?
  • Of the 12.5% growth clocked by Marico, volume growth was 15% YoY 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 10% YoY with the market share of coconut oil Parachute, Nihar and Oil of Malabar standing at around 53%. Saffola saw a volume growth of 18% 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 14% YoY as a result of packaging, restaging, media campaigns and launching packs at penetrative price points. Volume market share for value added hair oils now stand at 22% up from 17% four years ago.

  • International business which comprises 23% of the group turnover grew by 23% YoY during the quarter, driven by an 18% volume growth and 5% value led growth. However, the growth was depressed to the extent of 5% as a result of currency appreciation. 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 3% YoY during the quarter, sales for Kaya stood at Rs 624 m (up 28% YoY). Loss at PAT level was Rs 35 m down from Rs 62.5 m in 2QFY10. Kaya clinics ended the quarter at a figure of 101 Kaya clinics operational.

    Cost break-up
    As a % of sales 2QFY10 2QFY11 1HFY10 1HFY11
    COGS 47.3% 49.8% 48.9% 50.4%
    Staff costs 7.3% 7.5% 7.1% 7.2%
    Advertisement costs 13.4% 12.2% 12.8% 12.0%
    Other expenditure 18.3% 17.8% 17.4% 17.3%

  • Operating margins fell on the back of higher raw material costs as a result of rise in copra prices. Copra prices were higher by 26% in 2QFY11 compared to the same period last year. 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 15% YoY. This performance was due to higher other income, lower interest costs, lower depreciation charge and fall in effective tax rate. Effective tax rate fell from 17.5% in 2QFY10 to 14.7% in 2QFY11 as the company commissioned a plant for manufacturing edible oil in a tax exempt zone.

What to expect?
At a price of Rs 136, the stock is trading at 24.5 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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