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					Marico
1QFY2009 Result Update

ACCUMULATE
Price Target Price Investment Period Rs57 Rs65 12 months

Performance Highlights
Robust Topline growth, up 28%: For 1QFY2009, Marico posted a robust Topline growth of 28.1% yoy to Rs601cr (Rs469cr) on a consolidated basis, which was significantly ahead of our expectation of an 18.8% growth to Rs557cr. The higher-than-expected Topline growth was aided by a buoyant 15% volume growth, 10% value growth (price hikes) and 3% inorganic growth. Healthy performance across all its businesses including Consumer products in India, International business and Kaya skin solutions contributed to the overall growth. Strong volume growth in its key brands Parachute and Saffola, despite higher base, coupled with rising ad spends reinforces our confidence in the management to sustain steady Topline growth going ahead. Modest Earnings growth, up 15%: Marico’s Earnings for the quarter, on a consolidated basis, grew at a modest pace of 15.1% yoy to Rs46.3cr (Rs40.2cr), which was marginally below our expectation of a 22.2% yoy growth to Rs49.1cr. The lower-than-expected Earnings growth, despite robust Topline, was largely on account of Margin contraction owing to higher raw material costs and ad spends. Margins disappoint, contract 148bp: At the operating front, Marico delivered a disappointing performance registering a 148bp contraction in OPM to 12.6% (14.1%) resulting into a 14.6% yoy growth in EBITDA to Rs75.7cr (Rs66cr). Higher raw material costs (up 163bp yoy) and higher advertising spends (up 95bp yoy) were the key reasons for the contraction in Margins. Marico is witnessing significant surge in its key input costs like Copra (up 30%) and Edible Oils (Safflower Oil, Sunflower Oil, Rice bran Oil and Corn Oil, which are up 50%, 30%, 25% and 20%, respectively). The company is looking at mitigating the rising input costs pressures by undertaking price hikes (8% in Parachute, 10% in value-added hair oils and 20% in Saffola). We believe Marico is likely to undertake another round of price hikes in the next few months especially in Parachute given the steep rise in Copra prices. Key Financials
Y/E March (Rs cr) Net Sales % chg Adj Net Profit % chg OPM (%) EPS (Rs) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Stock Info
Sector Market Cap (Rs cr) Beta 52 WK High / Low Avg Daily Volume Face Value (Rs) BSE Sensex Nifty BSE Code NSE Code Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF/Banks/Indian FIs FII/ NRIs/ OCBs Indian Public 63.5 12.2 16.8 7.5 FMCG 3,444 0.6 83 / 47 227,950 1 14,777 4,434 531642 MARICO MRCO.BO MRCO IN

FY2007 1,557 36.1 98.9 13.8 12.8 1.9 30.7 18.0 51.4 33.0 2.4 18.5

FY2008 1,907 22.5 158.5 60.3 12.9 2.8 20.5 11.0 50.4 32.0 1.9 14.9

FY2009E 2,330 22.2 172.8 9.1 12.2 2.8 20.1 8.0 39.7 30.7 1.6 12.9

FY2010E 2,712 16.4 217.5 25.8 12.6 3.6 16.0 5.8 36.2 31.7 1.4 10.8

Abs. Sensex (%) Marico (%)

3m (11.6) (18.5)

1yr (6.4) 2.5

3yr 99.1 101.9

Anand Shah
Tel: 022 – 4040 3800 Ext: 334 e-mail: anand.shah@angeltrade.com

July 24, 2008

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Marico
FMCG

Key Developments
Parachute coconut oil registered 8% volume growth for 1QY2009 despite 8% price hike (3% in July 2007 and another 5% in April 2008), which indicates the brand’s strong pricing power. However, higher Copra prices (up 30% yoy) warrant another round of price hike in Parachute, which we believe is likely in 2QFY2009. Marketshare of the brand currently stands at 48% in volume terms. During the quarter, Nihar recorded double-digit volume growth. Marico’s marketshare in the branded coconut oil, including Nihar, category stands at a strong 55%. The Hair Oils segment has been witnessing healthy growth. Marico’s hair oils in rigid packs grew 26% yoy in volume terms for 1QFY2009. o In the perfumed hair oil category (rigid packs), Parachute Jasmine and Nihar registered 26% volume growth for the quarter. Between the two brands, Marico commands a dominating marketshare of 77% in the category. o Shanti Amla recorded a steady growth of 12% yoy boosted by brand endorsements. It and commands 9% marketshare in the Amla oil category. o Hair & Care registered volume growth of 21% during the year buoyed by promotions. It commands 16% marketshare in the non-sticky hair oils (NSHO) market. Marico has leveraged its expertise in the hair care space and developed a range of products particularly in the post-wash hair grooming products including brands like Silk-N-Shine (de-grew 14% this quarter), Parachute After Shower hair cream and Parachute After Shower gel (registered growth of 18% during the quarter). The Saffola franchise registered a strong 28% growth in volumes for the year led by higher growth of Saffola Gold and introduction of a new variant, Saffola Active. This was despite the steep price hikes. The company has also extended the Saffola franchise beyond edible oils into functional foods and recently launched the Diabetics variant nationally. International business continues to perform well: Marico’s International business grew 37% yoy (15% yoy without South Africa) during the quarter largely led by inorganic growth. In Bangladesh, Parachute coconut oil increased its marketshare to 69%. The thrust on expanding the franchise of Parachute hair cream in the Middle East continues. In Egypt, Fiancee and HairCode witnessed marginal slowdown in offtake owing to change in distribution strategy and product re-launch. Combined share of both the brands in Egypt stands at 62%. Integration of the South African business is progressing well and the business registered a turnover of Rs14cr during the quarter. Kaya Skin Clinic – growing at a rapid pace: Kaya registered a robust growth of 62% yoy for the quarter delivering Rs36cr turnover. This growth has been delivered roughly in equal measure through new clinics, volume increase from existing clinics and price increases. Revenue growth in clinics in India in 1QFY2009 that were operational in 1QFY2008 stood at 25%. During the quarter, Kaya skin care added 4 clinics in India (3 in existing cities) and one in the Middle East taking the total tally to 70. Kaya kiosks at various malls are now present at 38 locations. However, revenue generation from these kiosks has not been as high as anticipated. We remain extremely positive on Kaya’s business model owing to high scalability and a differentiated offering. In June 2007, Kaya was extended beyond skin care solutions. Kaya Life centers offer holistic weight loss solutions that are customised to individuals and now operates 3 centres in Mumbai. Going ahead, we expect Marico to regain its focus on building critical mass for the venture by taking its total network to 91 clinics by FY2010E. The key challenges for Kaya, in terms of costs, remain higher lease rentals and employee costs. New Launches – In April 2008, Marico launched Parachute Advansed Night Repair Cream, which is being prototyped in Mumbai. In July 2008, the company launched Hair & Care Almond Gold – nourishing non-sticky hair oil – which is competing with Bajaj Almond Drop. Marico also entered the cooling oils category with the prototype launch of Maha Thanda in Bihar during 4QFY2008. Besides these, Parachute Advansed Starz (hair care product for kids) and Saffola Function food for Diabetics have been accepted well and are in the process of being rolled out nationally. July 24, 2008 2

Marico
FMCG Outlook and Valuation During FY2008-10, we expect Marico to clock a CAGR growth of 19.3% in Revenues backed by strong volume growth in the domestic market, aggressive expansion of Kaya (higher number of clinics, increasing product revenues and extension of the Kaya brand to other platforms like Kaya Life) and new product launches. The company expects its core brands Parachute and Saffola to deliver sustainable growth of 6-8% and 15% respectively, in volume terms over FY2008-10E. For its International business, a key revenue growth driver, management expects to clock a sustainable growth rate of 20% during the mentioned period. At the Operating front, we believe Marico is likely to witness pressure owing to rising Copra prices (risen 30% during FY2008), strong rollout of Kaya Skin Clinics (will drag profits till operations stabilise) and consolidation of South African acquisition (clocks lower margins v/s Marico’s core business). We expect Marico to post a CAGR growth of 1.5% in EBITDA during FY2008-10 largely driven by Topline growth as Margins are expected to remain muted (modeled a decline in FY2009). We remain bullish on management’s ability and product portfolio to deliver consistent growth going ahead, as majority of the Revenue growth continues to be volume driven. Thus, we have revised our Revenue estimates upwards by 3.6% and 5.9% for FY2009E and FY2010E, respectively. However, owing to rising cost pressures, we have downgraded our Earning estimates by 5.4% and 1% for FY2009E and FY2010E, respectively. At the CMP of Rs57, the stock is trading at 16.0x FY2010E EPS of Rs3.6. We recommend Accumulate on the stock with a Target Price of Rs65. Exhibit 1: 1QFY2009 Performance
Y/E March (Rs cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation & Amortisation Other Income PBT (excl. Extr Items) Extr Income/(Expense) PBT (incl. Extr Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT Minority Interest Adjusted PAT PATM (%) Equity shares (cr) Reported EPS (Rs)
Source: Company, Angel Research

1QFY2009 600.9 323.0 53.7 43.1 7.2 71.3 11.9 87.9 14.6 525.3 75.7 12.6 8.0 7.5 1.0 61.2 0.0 61.2 10.2 14.9 24.4 46.3 0.0 46.3 7.7 60.9 0.8

1QFY2008 469.1 244.5 52.1 34.2 7.3 51.2 10.9 73.3 15.6 403.1 66.0 14.1 7.1 5.8 0.7 53.9 0.0 53.9 11.5 13.6 25.3 40.2 0.0 40.2 8.6 60.9 0.7

% chg 28.1 32.1 26.2 39.3 19.9 30.3 14.6 12.9 29.1 13.7 13.7 9.4 15.1 15.2

FY2008 1,906.7 980.9 51.4 126.8 6.6 245.5 12.9 307.2 16.1 1,660.3 246.4 12.9 27.7 30.9 6.7 194.5 10.6 205.1 10.8 36.0 17.5 169.2 0.1 158.5 8.3 60.9 2.8

FY2007 1,556.9 803.8 51.6 91.1 5.8 212.4 13.6 251.0 16.1 1,358.2 198.7 12.8 20.6 52.2 10.2 136.1 14.0 150.1 9.6 37.2 24.8 112.9 0.0 98.9 6.3 60.9 1.9

% chg 22.5 22.0 39.3 15.6 22.4 22.2 24.0 34.2 (40.9) 43.0 36.7 (3.3) 49.9 60.3

July 24, 2008

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Marico
FMCG

TM

Angel Broking Limited
Research Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
DISCLAIMER: This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. Opinion expressed is our current opinion as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true and are for general guidance only. While every effort is made to ensure the accuracy and completeness of information contained, the company takes no guarantee and assumes no liability for any errors or omissions of the information. No one can use the information as the basis for any claim, demand or cause of action. Recipients of this material should rely on their own investigations and take their own professional advice. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions futures, options and other derivatives as well as non-investment grade securities - involve substantial risks and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. We do not undertake to advise you as to any change of our views expressed in this document. While we would endeavor to update the information herein on a reasonable basis, Angel Broking, its subsidiaries and associated companies, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent Angel Broking and affiliates from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Angel Broking Limited and affiliates, including the analyst who has issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of the companies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest with respect to company/ies mentioned herein or inconsistent with any recommendation and related information and opinions. Angel Broking Limited and affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

Sebi Registration No : INB 010996539

July 24, 2008

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