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Marico: Strong volume-led growth - Views on News from Equitymaster
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Marico: Strong volume-led growth
Nov 2, 2012

Marico Limited has announced its second quarter results for financial year 2012-13 (2QFY13). The company has reported a 19% YoY growth in sales and 10% YoY rise in net profits. Here is our analysis of the results.

Performance summary
  • Revenues grew by 19.4% led by 14% growth in offtake. All the three business divisions reported robust double-digit growth during the quarter. For 1HFY13, topline increased by 19.6%.
  • On the back of controlled raw material costs, the company has been able to overcome the steep rise in adspends and clock a 70 basis points expansion in operating margin. The operating margin for 1HFY13 increased by 180 basis points.
  • Earnings grew by a relatively subdued 10% on account of steep rise in interest and tax charges. During 1HFY13, earnings were up by 28%.

Consolidated picture
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 9,708 11,595 19.4% 20,141 24,298 20.6%
Expenditure 8,519 10,082 18.3% 17,682 20,907 18.2%
Operating profit (EBDITA) 1,189 1,512 27.2% 2,459 3,391 37.9%
EBDITA margin (%) 12.3% 13.0%   12.2% 14.0%  
Other income 96 39 -59.2% 169 184 9.0%
Interest 104 145 40.1% 202 316 56.4%
Depreciation 177 225 26.8% 346 418 20.7%
Profit before tax 1,005 1,182 17.6% 2,080 2,842 36.6%
Extraordinary items - -   - -  
Tax 205 293 42.8% 416 696 67.4%
Profit after tax/(loss) 800 889 11.1% 1,665 2,146 28.9%
Minority interest 17 30   32 49  
Net profit after tax/(loss) 783 859 9.7% 1,633 2,097 28.4%
Net profit margin (%) 8.1% 7.4%   8.1% 8.6%  
No. of shares (m)         645  
Diluted earnings per share (Rs)*         5.8  
Price to earnings ratio (x)*         35.3  
* trailing twelve month earnings

What has driven performance in 2QFY13?
  • Riding on a strong volume growth of 14%, Marico reported a 19% rise in revenues. The organic volume growth excluding the turnover of acquired Youth brands (Set Wet,Zatak and Livon) was 9%. These brands reported a top line growth of 28% during the quarter. The domestic consumer business, forming 69% of overall revenues, grew by 19% led by 17% rise in offtake. All the three main product categories namely Parachute coconut oil, value added hair oils and Saffola refined edible oil clocked double-digit growth. However the Saffola franchise grew by a slower 6% in volume terms as the higher premium of the brand compared to sunflower oil led to slower pace of uptrading by new consumers. The International Business grew by 16% aided by robust growth in Vietnam and MENA. The Kaya business segment grew by 38% led by same store growth of 10% in India and Middle East.

    Cost break-up...
    As a % of sales 2QFY12 2QFY13 gain/decline in basis points
    Raw material cost 55.2% 48.4% -684.09
    Staff costs 7.5% 8.3% 88.52
    Advertisement costs 9.2% 13.7% 452.51
    Other expenditure 15.9% 16.6% 63.78

  • The company continued to report incremental operating margins on the back of waning commodity inflation. In 2QFY13, the average copra prices were 33% lower but market prices of safflower oil and rice bran oil were up by 59% and 16%, respectively. As a result, the cost of goods sold to sales ratio reduced by 684 basis points. This has more than offset the 452 basis points jump in ad spends and a 89 basis points increase in staff costs (all as a percentage of sales). Therefore, the operating margin expanded by 70 basis points to 13%. Among business segments, domestic consumer care expanded EBIT margin by 0.5% to 15.7% whereas EBIT margin of International operations reduced by 3.2% to 8%. Skin care turned around reporting an EBIT margin of 6.2% for the quarter.

  • The steep jump in the company's operating profit has not percolated at the net level due to steep jump of over 40% in interest and tax charges. The company's tax incidence increased by 500 basis points to 25% during the quarter. Even the other income earned during the quarter was down by 59%. Earnings were up by a mere 10% during the quarter.

What to expect?
At a price of Rs 204, the stock is trading at 17 times our FY15 estimated earnings. However at current price levls, the stock appears overpriced and we continue to maintain a SELL on the stock. We will further update our subscribers post the conference call with the management.

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