marico by mudgalbharat

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Marico Ltd (Q2 FY09)
October 22, 2008 Stock data
Sensex: CMP (Rs): Target price (Rs): Upside (%): 52 Week h/l (Rs): Market cap (Rs cr) 6m Avg vol BSE&NSE (‘000 nos): No of o/s shares (mn): FV (Re): Bloomberg code: Reuters code: BSE code: NSE code 10,683 55 64 16.9 85/46 3,350 552 609 1 MRCO IN MRCO.BO 531642 MARICO

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Consolidated revenues recorded a strong 30% yoy growth at Rs6bn led by 11% organic and 3% inorganic growth. International FMCG business registered 59% growth in revenues. Kaya clocked 67% yoy growth in revenues at Rs400mn. Higher raw material and overhead cost pulled down operating margins by170bps. Net profit rose by 12% yoy to Rs471mn; excluding foreign exchange mark to market loss of Rs70mn the growth could have been higher at 24% yoy.

ä We expect Marico to witness a 19.1% CAGR in revenues and 20.5% CAGR in net profit over FY08-10E. Result table
Period to (Rs mn) Sales & services Expenditure Operating profit Other income 09/08 (3) 6,035 (5,296) 739 12 (87) (82) 583 (111) 471 0 (0) 471 12.2 609 3.1 17.8 09/07 (3) 4,638 (3,991) 647 5 (65) (64) 523 (101) 423 0 (0) 422 14.0 609 2.8 Growth (%) 30.1 32.7 14.2 135.7 33.8 27.5 11.3 10.3 11.6 20.3 11.6 09/08 (6) 12,044 (10,549) 1,496 22 (167) (156) 1,195 (261) 934 0 (0) 934 12.4 609 3.1 17.9 09/07 (6) 9,329 (8,022) 1,307 12 (136) (122) 1,062 (237) 825 0 (1) 824 14.0 609 2.7 Growth (%) 29.1 31.5 14.4 83.0 22.9 28.6 12.5 9.8 13.3 (52.2) 13.3 -

Shareholding pattern
September 2008 Promoters FIIs & institutions Non promoter corp hold Public & others (%) 63.5 27.8 1.6 7.2

Interest Depreciation PBT Tax PAT Extraordinary item Minority interest Adjusted PAT OPM (%) Equity EPS (Rs) Annualized P/E (X), CMP - Rs55

Share price trend
200 Marico Sensex

150

100

Source: Company, India Infoline Research

50 Oct-07

Feb-08

Jun-08

Oct-08

Revenues beat expectations; key brands record strong volume growth Marico surpassed our revenue expectations (of Rs5.8bn) by recording strong 30.1% yoy growth at Rs6bn during Q2 FY09. The growth was primarily driven by 11% organic, 3% inorganic and 16% price led growth. Marico’s all key brands (Parachute 12%, Nihar 10%, Saffola 9% (18% in H1 FY09), Hair & Care 23%, Shanti Badam Amla 25%, Parachute Advansed hair creams and hair gels 13%) recorded robust volume growth during the quarter. In the perfumed coconut oil segment, Parachute Jasmine and Nihar perfumed oils recorded 9% volume growth. Nihar growth could have been higher but for the 15% price hike taken during the quarter. International FMCG business, which contributes 16% to revenues, registered a strong growth of 59% yoy (includes Fiancee and Hair Code in Egypt and Enaleni in South Africa). Marico’s international business excluding South African operations recorded 41% yoy growth during the quarter.

India Infoline Research Team
research@indiainfoline.com

India Infoline Ltd, 15th Floor, P.J.Tower, Dalal Street, Mumbai -01. Tel 91-22-67491700.

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Marico Ltd (Q2 FY09)
Trend in total revenues
35 30 25 20 15 10 5 FY09E FY10E FY11E FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 (Rs bn) (yoy %) 40 35 30 25 20 15 10 5 -

Source: Company, India Infoline Research

Kaya records Rs400mn revenues, up 67% yoy Revenues from Kaya skin clinics surged by 67% yoy to Rs400mn driven by new clinics and increased volumes from existing clinics. During the quarter, Kaya introduced an anti-ageing product, Kaya Revive and Firm (comprise ~12% of Kaya’s revenue) priced at Rs800 for 50ml. The Kaya clinics in India, which were operational in Q2 FY08, recorded a revenue growth of 26% yoy during the quarter. Marico opened 8 new Kaya clinics during the quarter taking the total to 77 clinics (67 clinics operational across 20 cities in India and 10 clinics in the Middle East). Higher raw material cost pulls down margins; sharp drop in advertising cost restricts further erosion Operating margins for the quarter declined by 170bps; due to sharp rise in raw material and overhead (includes foreign exchange mark to market (MTM) loss of Rs70mn) cost. Sharp 400bps drop in adspend restricted further margin erosion. All key raw materials like copra (~30% yoy), sunflower oil (~20%), safflower (~50%), corn oil (~10%) and rice bran oil (~25%) witnessed a sharp increase in prices. Marico has taken a 5% price hike in Parachute (3% in July 2007 and 5% in April 2008) and 15% in Nihar to mitigate the input cost impact. We expect margins to continue to remain under pressure due firm raw material prices. Cost Analysis
Period As % of net sales Raw materials Staff Advertising Other expenditure 09/08 (3) 54.3 6.4 9.0 18.1 09/07 (3) 51.6 5.5 13.0 15.9 2.7 0.9 (4.0) 2.2 Inc/Dec 09/08 (6) 54.0 6.8 10.4 16.4 09/07 (6) 51.9 6.4 12.0 15.8 2.1 0.4 (1.5) 0.6 Inc/Dec

Source: Company, India Infoline Research

Rising trend in copra prices
4,700 4,300 3,900 3,500 3,100 2,700 Dec-06 Dec-07 Mar-07 Mar-08 Jun-06 Jun-07 Sep-06 Sep-07 Jun-08 Sep-08 (Rs/Quintal)

Source: Coconut Board, India Infoline Research Quarterly Update 2

Marico Ltd (Q2 FY09)
Net profit growth in line with expectation Marico recorded 11.6% yoy growth in net profit at Rs471mn during the quarter, almost in line with our expectations of Rs479mn. The MTM loss of Rs70mn restricted net profit growth. Excluding which, the net profit growth could have been higher at 24% yoy. We expect Marico to witness a 20.5% CAGR in net profit over FY08-10E. Outlook Marico has recorded a strong 28% and 30% yoy growth in the past two consecutive quarters with revenues at Rs12bn during H1 FY09, led by a healthy volume growth of ~13-15%. The company is also believed to be competing with Dabur India in the fray to acquire Fem Care Pharma. The company continues to strengthen its core businesses (hair oil and edible oil) and is enriching new growth drivers like Kaya and other personal care products. Going forward, due to firm raw material prices, especially copra, operating margins are expected to remain under pressure. At the current market price of Rs55, the stock is trading at 14.5x FY10E EPS of Rs3.8. We recommend Buy. Projected financials
y/e March, Rs mn Revenues yoy growth (%) EBITDA EBITDA margin (%) PAT Pre-exceptional PAT yoy growth (%) EPS (Rs) P/E (x) P/BV (x) EV/EBITDA (x) ROE (%) ROCE (%) FY06 11,439 13.6 1,443 12.6 869 869 23.9 1.5 36.7 12.2 23.5 33.2 20.6 FY07 15,569 36.1 1,987 12.8 1,129 989 29.9 1.9 29.7 17.4 17.9 58.7 35.3 FY08 19,067 22.5 2,463 12.9 1,691 1,586 49.8 2.8 19.8 10.6 14.7 53.7 33.0 FY09E 22,968 20.5 2,988 13.0 1,855 1,855 9.7 3.0 18.1 7.4 12.0 41.2 33.9 FY10E 27,045 17.8 3,553 13.1 2,303 2,303 24.2 3.8 14.5 5.4 9.9 37.1 34.0

Source: Company, India Infoline Research

The information provided in the document is from publicly available data and other sources, which we believe are reliable. It also includes analysis and views expressed by our research team. The report is purely for information purposes and does not construe to be investment recommendation/advice. Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. Efforts are made to try and ensure accuracy of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may arise from any error in this document. India Infoline and/or any of its affiliates and/or employees may or may not hold positions in any of the securities mentioned in the document. This document is not for public distribution and should not be reproduced or redistributed without prior permission.

Quarterly Update

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