Marico (Q1 FY13)

India Infoline News Service | Mumbai |

Marico recorded healthy 21.7% yoy growth in consolidated revenues at Rs12.7bn during Q1 FY13 fuelled by strong underlying volume growth of 14%.

CMP Rs191, Target Rs211, Upside 10.4% 
  • Marico recorded healthy 21.7% yoy growth in consolidated revenues at Rs12.7bn (above our expectation of Rs12.1bn) during Q1 FY13 fuelled by strong underlying volume growth of 14%. Domestic volume growth was higher at 16% (10.3% in Q4 FY12), led by strong growth in hair oil portfolio. 
Strong growth across key categories/ businesses
Segment Q1 FY13 (% yoy) Indicative share to
Group’s Turnover
basis FY12 results
Group : Total Reported value growth 22%  
Group : Total Volume growth 14%  
Consumer Products Business (India)* 22% 69%
Parachute Coconut Oil (Rigid packs) 22% 24%
     
Value Added Hair Oil Brands 33% 14%
Saffola (Refined edible oil) 20% 15%
     
International Business Group : Total 17% 24%
Kaya : (India + Middle East) (same store sales growth) 12% 7%
Source: Company, IIFL Research
* Without including Sweekar in the base (Marico had divested Sweekar in March 2011) and turnover from the acquired Paras personal care brands in the current quarter. 
  • Parachute and value added hair oils recorded 18% and 25% volume growth respectively. A 25% volume growth in value added hair oils was driven by market share gains across segments. Marico has increased its market share in the Amla category by 530bps yoy to 20%. Impacted by lower discretionary spends Saffola recorded a modest 12% yoy volume growth. The management expects Saffola brand to record volume growth of ~12-14% during FY13 and targets to derive ~25% of Saffola sales from healthy foods in the next 2-3 years.

  • The international FMCG business contributing ~24% to the group’s turnover recorded 17% yoy growth during the quarter. In constant currency terms though the growth was muted at 3% yoy. The Bangladesh business (40% of international revenues) revenues declined by 2% yoy impacted by a challenging demand environment. The management expects its international business to come back in healthy double digit growth trajectory in constant currency terms by H2 FY13 accompanied by operating margins in the range of ~11%-12% (currently at 8.5%) for FY13.

  • The Kaya business (contributing ~7% to revenues) recorded 29% yoy revenue growth during Q1 FY13. The same store sales growth for Kaya business in India and Middle East was at ~12% yoy however, impacted by weak demand environment the growth for India was in mere single digits. Kaya registered a loss of Rs73mn at PBIT level against Rs55.8mn during Q1 FY12. According to the management, the increase in loss was primarily due to a one time exceptional loss of Rs48mn on account of the proposed sale of Kaya Training Centre building. Excluding this exceptional item the losses have almost halved yoy to Rs25mn. The company plans to prototype a new retail format for Kaya business in India towards the latter half of the year with a smaller store format of ~500 square feet which will focus on sales of products and customized skin beauty services.

  • Revenues from Paras’ personal care products business were ~Rs100mn which represents less than one month’s (~20 days) revenues. Marico expects this business to record ~25-30% revenue growth per annum over the next three years.

  • Operating margins surprised us positively by expanding by 260bps to 14.6% fuelled by a 660bps drop in raw material cost. Key reason being a sharp 38% yoy decline in copra prices (were at pick in Q4 FY11). Prices of other key inputs safflower (up 46% yoy) and rice bran (up 20% yoy) though still remain firm. Marico plans to pass back part of the lower copra price benefit to the consumers especially in the lower price point (recruiter) packs. The margin expansion could have been even better but for the sharp 300bps jump advertising cost. The management expects advertising spends to remain at ~11-12% of sales for the next few years.

Cost Analysis
As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Material cost 50.6 57.2 (656) 46.5 413
Personnel cost 7.5 6.8 70 9.1 (164)
Advertising cost 12.3 9.3 296 12.9 (62)
Other overheads 15.1 14.7 33 19.5 (447)
Total costs 85.4 88.0 (257) 88.0 (260)
Source: Company, IIFL Research 
  • Pre-tax profit jumped to Rs1.7bn from Rs1.1bn in Q1 FY12 partly aided by healthy revenue growth and higher other income. The growth could have been even better but for higher effective tax rate for the quarter at 24.2% against 19.6% during Q1 FY12. (Marico expects to maintain tax rate at ~22% in FY13.) Adjusted net profit for the quarter increased by 45.7% yoy to Rs1.2bn – above our expectation of Rs1.1bn.
  • Marico has shown a strong performance during Q1 FY13 with its domestic hair oil portfolio registering healthy 16% volume growth. Marico management expects to maintain its strong volume growth momentum going forward. The international business is expected record healthy double digit growth trajectory H2 FY13. Kaya is expected to continue its strong revenue growth trajectory and break-even by FY14. Given the lower input cost scenario (steep decline in copra prices) coupled with strong revenue and volume growth, we expect Marico to witness ~28% earnings CAGR over FY12-14E. At the current market price of Rs191, the stock is trading at 23.2x FY14E EPS of Rs8.2. We maintain Buy with a revised 9-month target price of Rs211 (earlier Rs196). 
Results table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 12,672 10,414 21.7 9,177 38.1
Material cost (6,411) (5,952) 7.7 (4,264) 50.4
Personnel cost (947) (705) 34.3 (836) 13.3
Advertising cost (1,559) (972) 60.3 (1,186) 31.4
Other overheads (1,908) (1,533) 24.4 (1,792) 6.5
Operating profit 1,848 1,251 47.7 1,100 68.0
OPM (%) 14.6 12.0 257 bps 12.0 260 bps
Depreciation (193) (169) 14.4 (191) 1.4
Interest (170) (98) 73.7 (113) 50.6
Other income 176 92 92.6
BSE 312.70 [0.10] ([0.03]%)
NSE 313.05 1.10 (0.35%)

***Note: This is a NSE Chart

 

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