MARICO Volume robust; Kaya & new products key monitorable :: Edelweiss,

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MARICO
Volume robust; Kaya & new products key monitorable




􀂃 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 was passed on to
consumers during H2FY10 to expand the consumer franchise. PAT jumped 16%
Y-o-Y, to INR 716 mn (our estimate of INR 769 mn).
􀂃 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, up ~23%
Y-o-Y, driven by ~18% volume growth and ~5% price-led growth. However, due
to 5% INR appreciation, overall reported growth was 18%.
􀂃 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 clinic 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 revenue growth in the
domestic business to improve in H2FY11 due to low base of H2FY10.
􀂃 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 staff costs,
which jumped 270bps and 20bps, respectively, in Q2FY11. The company’s
primary focus is on growing its brand franchise rather than increasing margins.
􀂃 Outlook and valuations: Fairly valued over near term; maintain ‘BUY’
Marico is eyeing growth through low unit packs (LUPs), rural markets, focus on
non-coconut hair oil and new product initiatives in the 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’.