Marico (Buy) n Revenues robust; backed by strong volume growth : Edelweiss

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Marico (MRCO IN, CMP 133, Buy)
n Revenues robust; backed by strong volume growth
Marico’s Q2FY11 revenues rose 13% Y-o-Y to INR 7.79 bn, marginally below our
estimate of INR 7.96 bn. Volume growth was robust at 15% Y-o-Y. Value growth was
lower owing to reduction in key input costs, which were passed on to consumers during
H2FY10 to expand the consumer franchise. The company’s PAT jumped 16% Y-o-Y to
INR 716 mn (our estimate of INR 769 mn).
n Parachute and Saffola volumes sturdy
Parachute and Saffola volumes grew ~10% and 28% Y-o-Y, respectively. The company’s
international business continued to grow handsomely, posting ~23% Y-o-Y jump driven
by ~18% volume growth and ~5% price led growth. However, due to 5% INR
appreciation overall reported growth was 18%.
n Kaya- revenue growth rises; international business shines
Kaya skin clinics posted revenue growth of 28% Y-o-Y to INR 624 mn in Q2FY11. Though
same store clinic sales (clinics over a year old) declined 3% Y-o-Y. Kaya(excluding derma
Rx) incurred a loss of INR 35 mn at the PBT level. In FY11, while Kaya plans to add 4-6
clinics in the Middle East, it is unlikely to open any new clinics in India. In Q2FY11 one
clinic each was opened in Middle East and Bangladesh. As per the company, acquisition
of Derma Rx helped the Kaya business to post PBT of INR 8.5 mn. We expect the
revenue growth in domestic business to improve in H2FY11 due to low base of H2FY10.
n EBITDA stable; margins decline
Marico’s Q2FY11 EBITDA grew 4.5% Y-o-Y to INR 993 mn. EBITDA margin dipped 97bps
Y-o-Y. Lower A&P and other expenditure contributed 101bps and 91bps, respectively.
These savings were offset by higher COGS and sta ff cost, which jumped 270bps and
20bps, respectively, in Q2FY11. The company’s primary focus is on growing its brand
franchise rather than increasing margins.
n Outlook and valuations: Fairly valued over near term; maintain ‘BUY’
Marico is eyeing growth through low unit packs (LUPs), rural markets, focus on noncoconut
hair oil, and new product initiatives in food segment under saffola. Kaya’s
domestic business, which we believe is an overhang in the near term, is a key concern.
We maintain our ‘BUY’ recommendation on the stock. On relative return basis, the stock
is rated ‘Sector Performer’
n Conference call key takeaways
· Focus on volumes over medium term: Company’s major focus in medium term will
be on volume growth.