Marico Price Hike Initiated, Maintain HOLD :: Emkay

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Marico

Price Hike Initiated, Maintain HOLD

HOLD

CMP: Rs 135                                        Target Price: Rs 128

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n     Marico’s Q2FY11 performance meets expectation - revenue growth of 12.5% yoy to Rs7.8 bn and APAT growth of 14.8% yoy to Rs715 mn

n     Implemented price hike to offset material price inflation - 13% in ‘Parachute’ and ‘10%’ in ‘Saffola’ rice bran oil

n     Satisfactory volume growth at 15% yoy - ‘Parachute’ grew by 10%, ‘Saffola’ grew by 18% and ‘Hair oil’ grew by 27%

n     Maintain earnings estimates of Rs4.9/Share and Rs5.8/Share for FY11E and FY12E – Maintain ‘HOLD’ rating with price target of Rs128/Share

Marico’s Q2FY11 performance meets expectation - APAT growth of 14.8%

yoy to Rs715 mn

Marico Q2FY11 performance meets expectation. The key highlights are (1) 12.5% yoy

growth in revenues to Rs7.8 bn (2) 4.2% yoy growth in operating profit to Rs992 mn and

(3) APAT growth of 14.8% yoy to Rs715 mn. Blended volume growth in the quarter was

satisfactory at 15.0% yoy versus 16.0% in Q1FY11 and 14% in Q4FY10. Operating

margins fell by 100 bps owing to reduction in gross margins – impact of price hikes

would be visible in ensuing quarters.

Satisfactory volume growth of 15% in Q2FY11 – key brands post

satisfactory performance

Satisfactory volume growth at 15% in Q2FY11 versus 15.0% in Q1FY11 and 14% in

Q4FY10. ‘Parachute’ - flagship brand (oils in rigid pack) reported volume growth of 10%

yoy and ‘Saffola’ refined oils recorded strong volume growth of 18% yoy – continued the

growth momentum. Hair-Oils portfolio recorded 27% volume growth in Q2FY11.

Implement price hike in ‘Parachute’ and ‘Saffola in August – October 2010

20-25% price increase in key raw material Copra and Ricebran Oil - Marico has initiated

selective price hike to offset the impact of raw material inflation. (1) ‘Parachute’ in rigid

packs – prices increased by 5% in August 2010 and 8% in October 2010 (2) Saffola

(rice bran oil) – prices increased by 5% in September 2010 and 5% in October 2010.

But, no price increases taken on Parachute in flexi pouch – being a price sensitive

segment. These price increases would offset the material price inflation and benefit

should flow in ensuing quarters.

Strong growth outlook– shared in the Q2FY11 earnings conference call

Strong growth outlook was reiterated by management in the Q2FY11 earnings

conference call. Overall blended volume growth expectation for FY11E is 14-

16% - with Parachute at 8-10%, Saffola at 14-16% and Hair Oils portfolio at

+20%. The recent price hikes would translate volume-led growth into value-led

growth in H2FY11E. Both, rural and urban markets remain buoyant, but urban

is now relatively more buoyant then rural.

Maintain earnings estimates, Maintain HOLD rating

Price hike implemented on ‘Saffola’ and ‘Parachute’ would largely offset the Impact of

material price inflation. Though, Marico has lost some gross margins in the transition, it

should be offset by revised taxation on profits – from 20% of PBT to 16% of PBT now. We

maintain earnings estimates of Rs4.9/Share and Rs5.8/Share for FY11E and FY12E

earnings. We maintain ‘HOLD’ rating with price target of Rs128/Share.