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Marico recorded modest ~11% yoy growth in consolidated revenues at Rs11.6bn (below our expectations of Rs12.5bn) during Q3 FY13 mainly due to slower growth in its key brands Parachute, Saffola and the international business. The reason behind the slowdown in key brands was the increased price differential with the unbranded competitor brands. Marico has already taken corrective action in terms of price cuts (3-6% in Saffola) and the management expects the volume growth to be back on track in the next 2-3 months.
Domestic consumer care business revenues increased by ~14% yoy to Rs8.7bn led by 15% yoy volume growth, but underlying organic volume growth moderated to 9% yoy, while at the consolidated level, it was mere 5% yoy. Paras’ personal care products business (including Set Wet, Zatak and Livon) registered 18% yoy revenue growth at Rs430mn during the quarter. The management expects annual revenue growth of 25%+ in this business over the next few quarters led by new ad-campaigns and product launches.
Key categories/ businesses growth during Q3 FY13
|Categories||Volume||Value||% of Group’s Turnover|
|Consumer Products Business (Organic)||9%||10%||69%|
|Parachute Coconut Oil (Rigid packs)||6%||4%||24%|
|Value Added Hair Oils portfolio||30%||32%||4%|
|Saffola (Refined Edible Oil)||4%||10%||15%|
|International Business Group : Total||-||-||24%|
|As a % of net sales||Q3 FY13||Q3 FY12||bps yoy||Q2 FY13||bps qoq|
Effective tax rate for the quarter was higher at 25.6% against 17.1% during Q3 FY12 due to higher quantum of profits coming through from India as compared to the international business which is largely tax exempt. The management expects its effective tax rate to be ~24%-25% in FY13 and ~22%-23% in FY14. Net profit for the quarter increased by 21.6% yoy to Rs1bn – in line with our expectation.
The Marico management expects to maintain its strong volume growth momentum going forward. The international business is expected to record healthy double digit growth in Q4 FY13. Given the lower input cost scenario (steep decline in copra prices) coupled with strong revenue and volume growth, we expect Marico to witness ~24% earnings CAGR over FY12-14E. At the current market price of Rs224, the stock is trading at 29.3x FY14E EPS of Rs7.6. We recommend Buy rating on the stock with a revised 9-month target price of Rs256 (earlier Rs222).
|(Rs m)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|OPM (%)||13.9||11.8||215 bps||12.8||114 bps|
|Effective tax rate (%)||25.6||17.1||24.8|