Marico (Q3 FY13)

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.

February 05, 2013 10:33 IST | India Infoline News Service
CMP Rs224, Target price Rs256, Upside 14.3% 
  • 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
    Group 15% 16% 69%
    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%
    Kaya Skincare 4%* 5% 7%
    Source: Company, IIFL Research

  • Saffola and parachute brands too witnessed a muted volume growth of 4% yoy and 6% yoy respectively. Though both the brands maintained their market share at ~58% respectively (Parachute’s market share increased by 390bps). The management targets to derive ~25% of Saffola sales from healthy foods in the next 2-3 years.
  • International business reported a 3% yoy decline in organic revenue growth during Q3 FY13 in constant currency terms led by Middle East and Bangladesh In the international business. The reported growth was however flat due to the favorable benefit of rupee depreciation. There was a slowdown in Bangladesh market, as disruption due to political unrest had a significant impact on performance during the quarter (the company expects a sharp rebound in Q4 FY13).
  • The Kaya business registered 5% yoy increase in revenues at Rs785mn during the quarter with same store sales growth of 4% yoy in India and the Middle East achieved during the quarter.
  • Operating margins expanded by 210bps to 13.9% aided by a 420bps drop in raw material cost. Key reason being a sharp ~23% yoy decline in copra prices (were at pick in Q4 FY11). Prices of other key inputs safflower (up 52% yoy) and rice bran though still remain firm. The margin expansion could have been even better but for the sharp 150bps jump advertising cost. The management expects advertising spends to remain at ~12% of sales for the next few years. A&P spends on Youth brands (Set Wet, Zatak and Livon) will be a focus area given the low penetration in the segment.

    Cost Analysis
    As a % of net sales Q3 FY13 Q3 FY12 bps yoy Q2 FY13 bps qoq
    Material cost 48.0 52.2 (421) 48.5 (50)
    Personnel cost 7.8 7.7 8 8.4 (60)
    Advertising cost 13.6 12.1 150 13.7 (16)
    Other overheads 16.8 16.3 49 16.6 12
    Total costs 86.1 88.2 (215) 87.2 (114)
    Source: Company, IIFL Research
  • 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). 

Results table
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Net sales 11,640 10,500 10.9 11,559 0.7
Material cost (5,587) (5,482) 1.9 (5,606) (0.3)
Personnel cost (904) (807) 12.0 (967) (6.6)
Advertising cost (1,578) (1,266) 24.6 (1,586) (0.5)
Other overheads (1,950) (1,709) 14.2 (1,923) 1.4
Operating profit 1,620 1,236 31.1 1,477 9.7
OPM (%) 13.9 11.8 215 bps 12.8 114 bps
Depreciation (195) (188) 3.5 (225) (13.2)
Interest (146) (109) 34.1 (145) 0.6
Other income 127 101 25.8 75 69.3
PBT 1,406 1,039 35.3 1,182 19.0
Tax (360) (178) 102.3 (293) 22.9
Effective tax rate (%) 25.6 17.1   24.8  
Minority interest (23) (20) - (30)

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