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Marico: Tackling slippery growth - Views on News from Equitymaster
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  • Dec 10, 2001

    Marico: Tackling slippery growth

    Edible oil major, Marico Industries, had recently declared its second quarter FY02 results. It posted a marginal 1.8% growth in sales YoY but its bottomline growth was more or less stagnant YoY. On a consolidated half yearly basis, Marico declared 1.6% growth in topline and a marginal 3.5% growth in net profit.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Net Sales 1,631 1,660 1.8% 3,099 3,148 1.6%
    Other Income 7 6 -15.9% 13 13 0.0%
    Expenditure 1,466 1,477 0.8% 2,772 2,800 1.0%
    Operating Profit (EBDIT) 165 183 11.2% 327 347 6.3%
    Operating Profit Margin (%) 10.1% 11.0%   10.5% 11.0%  
    Interest 9 13 50.0% 19 21 11.8%
    Depreciation 22 27 25.9% 50 50 -0.2%
    Profit before Tax 141 149 5.2% 271 290 6.8%
    Tax 12 18 59.1% 23 33 42.5%
    Profit after Tax/(Loss) 130 130 0.5% 248 257 3.5%
    Net profit margin (%) 8.0% 7.9%   8.0% 8.2%  
    No. of Shares 14.5 14.5   14.5 14.5  
    Diluted Earnings per share* 35.8 36.0   34.2 35.4  
    P/E Ratio   6.1     6.2  

    At first glance the turnover growth looks discouraging. However, according to the company, the volume growth was significant, but due to lower product prices, the value figures were depressed. Infact, in 1HFY02, the coconut oil segment (Parachute and Oil of Malabar) grew by 9%.

    But in the refined oil category Marico witnessed a de-growth in Sunflower oil segment. Post Union Budget 2001, the custom duty rate on imported sunflower oil increased substantially (to 75%) while duty hike for other oils like soya (45%) was not so steep. This resulted in the relative price of sunflower oil being higher than other oils, resulting in a shift in the consumer preference towards cheaper oils. Marico however, focused on maintaining the margins on its sunflower oil brand. Consequently, there has been a marginal de-growth in Sweekar sales volumes during 1HFY02 as compared to 1HFY01, leading to a fall in Marico's overall refined oil market share.

    Brand Category Market Share %
    Aug '01 Aug '00
    Parachute & Oil of Malabar (OOM) Coconut Oils 54.5 54.9
    Saffola & Sweekar Refined Oils in Consumer Packs (ROCP) 12.1 13.4
    Hair & Care Non-Sticky Hair Oils (NSHO) 20.2 22.1
    Parachute Jasmine, Parachute Lite
    and Parachute Dandruff Solution
    Value Added Coconut Oils 13.7 9.5
    Shanti Amla (for April 01 to Aug 01) Amla Hair Oils 7.1 -

    ORG-Urban Retail data for the 12-month period ended August 2001

    The realisations of Parachute coconut oil were lower in 1HFY02. For example, the maximum retail price (MRP) of the largest selling pack (200 ml bottle) in 1HFY02 was lower at Rs 22.75, as compared to Rs 26 per bottle during 1HFY01. Added to that, sales of P&G (Proctor and Gamble) products fell, primarily because P&G withdrew the brands Clearasil/Ultra Clearasil (divested) and Camay Soap (discontinued) from the distribution agreement.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Raw material consumed 760 826 8.7% 1,490 1,586 6.4%
    Packing material consumed 186 195 4.7% 345 364 5.5%
    Staff cost 75 75 -0.1% 149 160 7.2%
    Advertising and sales promotion 215 127 -40.8% 358 257 -28.4%
    Other expenditure 230 254 10.4% 430 434 0.9%
    Total expenditure 1,466 1,478 0.8% 2,772 2,800 1.0%

    At the current market price of Rs 220 the stock trades at a P/e multiple of 6x annualised 1HFY02 earnings and a market cap to sales ratio of 0.5x. The valuations are on the lower side of the FMCG spectrum. Given the company's focus on the edible oil business and its ability to maintain its market share and growth despite HLL's entry into the segment, the company should have been rated higher. Also, the company has a consistent dividend paying track record.

    But concerns are that in these difficult market conditions, Marico, may continue to face pressure of pricing power. Though in this quarter, its expenditure has been under control due to lower advertising costs, competitive pressures and a difficult market may see an escalation in these costs in the coming quarters.



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    Aug 9, 2017

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    Nov 28, 2016

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    May 6, 2016

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    Aug 17, 2017 12:02 PM


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