Marico (Q1 FY14)

India Infoline News Service | Mumbai |

Marico recorded modest ~9% yoy growth in consolidated revenues at ~Rs13.8bn during Q1 FY14 – in line with our expectations

CMP Rs213, Target Rs236, Upside 10.5%
 
  • Marico recorded modest ~9% yoy growth in consolidated revenues at ~Rs13.8bn during Q1 FY14 – in line with our expectations. Domestic organic sales increased by 7% yoy at ~Rs10bn, with a strong volume growth of 10% while international business recorded healthy 15% yoy growth in revenues at ~Rs3bn (after two quarters of flat to declining numbers).

  • Parachute registered 3% yoy decline in revenues due to effective price cuts of 3.5% as well as local body tax agitation in Maharashtra (has a significant share in Parachute sales). Parachute witnessed mere 4% yoy volume growth during the quarter. Excluding the impact of the agitation the volume growth could have been at 6%. The management expects copra prices to increase in H2 FY14 and the recent price cuts taken by the company could have some negative impact on margins from current levels.

  • Value added hair oils grew by 19% yoy driven by strong 16% yoy underlying volume growth. The management is targeting 15-18% volume growth in the coming quarters and plans to participate in every sub-segment within this category.

  • Saffola registered mere 6% yoy revenue growth due to price cuts and increased competition in the category. Volume growth though was strong at ~10% yoy after three consecutive quarters of single digit volume growth. The management expects to maintain double digit volume growth for the rest of the year. The brand has lost market share by 130bps at 57.1% due to competitive intensity for the 12 months ended June’13. The management is confident of maintaining Saffola market share at ~57-58% going forward.

  • Paras’ personal care products business (including Set Wet, Zatak and Livon) registered revenue growth of 40%+ qoq at Rs550mn during Q1 FY14. Saffola Oats has gained a market share of ~13% and is now No. 2 player in the market. While, body lotions have garnered 7% market share and is No. 3 player now.

  • International business (~22% revenue contribution) registered 15% yoy growth in revenues at ~Rs3bn during Q1 FY14 driven by a strong volume growth of ~9% yoy. The management is targeting revenue growth of ~15-20% for FY14. EBITDA margins for the year are expected to remain at 11.5-12% and the management targets to achieve EBITDA margin of 14-15% over the next two years.

Sales growth across geographies

Geography
Sales growth (% yoy)
Bangladesh
16*
MENA
Flat
South Africa
Minor decline
South East Asia
26*
International Business (Reported)
15
International Business (Constant currency)
13

Source: Company, India Infoline Research * on constant currency basis


  • Bangladesh registered 16% yoy growth in constant currency term driven by strong growth in Parachute brand and diversification of its value added hair oil portfolio. The management   targets long term volume growth of 10% in Bangladesh and ~5-6% for its Parachute brand. South East Asia recorded 26% yoy revenue growth driven by strong growth in X-men brand and the management expects the strong growth to continue in FY14.

  • Egypt registered healthy 30% yoy revenue growth during the quarter. The management has stated that going ahead the growth in Egypt will depend on the political scenario in the country. Growth in the Gulf countries is expected to pick up in H2 FY14 since issues such as distributor restructuring and packaging changes are largely resolved.

  • Operating margins for the quarter expanded by ~190bps to 16.5% aided by 240bps drop in raw material cost. A 50bps/20bps increase in advertising/staff cost restricted further margin expansion. Adjusted net profit grew 27.4% yoy to Rs1.6bn – above our expectations of Rs1.3bn driven by improved operating efficiency.

Cost Analysis

As a % of net sales
Q1 FY14
Q1 FY13
bps yoy
Q4 FY13
bps qoq
Material cost
49
51
(241)
44
442
Personnel cost
8
7
19
10
(223)
Advertising cost
13
12
47
13
16
Other overheads
14
15
(19)
21
(688)
Total costs
84
85
(194)
88
(452)

Source: Company, IIFL Research

 
  • We believe going ahead with a favourable base, growth in key brand Parachute will be back on track. International business too will report strong growth on a favourable base in revenues and margins. With increasing copra prices, we expect the company to take price hike in its Parachute brand, which can help EPS growth. At the current market price of Rs213, the stock is trading at 23.5x FY15E EPS of Rs9.1. We recommend Buy rating on the stock with a 9-month target price of Rs236.
Results table
(Rs m)
Q1 FY14
Q1 FY13
% yoy
Q4 FY13
% qoq
Net sales
13,797
12,672
8.9
9,973
38.3
Material cost
(6,710)
(6,469)
3.7
(4,410)
52.2
Personnel cost
(1,058)
(947)
11.7
(987)
7.2
Advertising cost
(1,761)
(1,559)
13.0
(1,257)
40.1
Other overheads
(1,997)
(1,858)
7.5
BSE 304.00 [4.85] ([1.57]%)
NSE 305.95 [2.20] ([0.71]%)

***Note: This is a NSE Chart

 

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