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Marico: Falling raw material provides boost - Views on News from Equitymaster

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Marico: Falling raw material provides boost

Oct 28, 2009

Performance summary
  • Topline during 2QFY10 grew by 14.4% YoY. This strong performance comes on the back of robust growth in all categories.
  • Operating (EBITDA) margin grew by 1.5% during the quarter to 13.7%. This increase comes on the back of fall in raw material costs offset by increase in employee and advertisement and sales promotion expense.
  • Net Profit margins increased by 1.2% during the quarter to 9%. This growth comes on the back of higher sales and lower operating costs on a YoY basis.
  • For 1HFY10 the net profit margins increased by 0.7% to 8.5% due to higher sales and operating income.


Consolidated picture
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 6,049 6,922 14.4% 12,015 13,889 15.6%
Expenditure 5,310 5,972 12.5% 10,519 11,975 13.8%
Operating profit (EBDITA) 739 950 28.5% 1,496 1,914 28.0%
EBDITA margin (%) 12.2% 13.7%   12.4% 13.8%  
Other income 21 42 95.7% 48 73 54.2%
Interest 96 56 -41.4% 192 142 -25.8%
Depreciation 82 179 118.5% 156 278 77.9%
Profit before tax 583 757 29.9% 1,195 1,567 31.2%
Extraordinary items -   -     -   (41)  
Tax 111 133 19.1% 261 343 31.6%
Profit after tax/(loss) 471 624 32.4% 934 1,184 26.7%
Minority interest 0 1 357.0% 0 1 154.5%
Net profit after tax/(loss) 471 624 32.3% 934 1,183 26.7%
Net profit margin (%) 7.8% 9.0%   7.8% 8.5%  
No. of shares (m) 609.2 609.2   609.2 609.2  
Diluted earnings per share (Rs)*         3.5  
Price to earnings ratio (x)*         27.7  
* trailing twelve month earnings

What has driven performance in 2QFY10?
  • Marico’s strong performance is supported by strong volume growth across categories. Parachute in rigid packs witnessed a 10% YoY volume growth during the quarter while volumes for value added hair oils grew by 17% YoY.

  • The company’s international business during the quarter grew by 33% adjusting for currency with strong demand seen in Bangladesh, Middle East , South Africa and Egypt.

  • Kaya Skin clinics achieved a turnover of Rs.490 m, an increase of 24% YoY with the number of Kaya clinics increasing by 2 during the quarter to end at 99 clinics overall.

  • Operating income for the quarter grew by 28.8% YoY due to fall in copra price by 27% YoY and fall in Safflower prices by 25% YoY.

What to expect?
At a price of Rs. 97, the stock is trading at 19.5 times our FY12 estimated earnings. The company has a portfolio of strong brands, which have shown resilience over a period of time. The price premier Saffola had over its competitors has reduced resulting in the strong growth for the brand. The slowdown in Kaya observed due to slowdown in consumer spending may also be a thing of the past with the economy recovering. The company is seeking opportunities to grow inorganically. We believe the company has good prospects and will update our estimates after meeting the management.

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