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Price increases unlikely to result in volume decline
32% price increases have been taken on Parachute coconut oil due to input cost pressure. This could in turn put pressure on
volumes but they are unlikely to turn negative. Price increases are occurring across all brands and loose oils, so
competitive pricing does not change much. Marico will drop prices on small packs as soon as input cost falls; price cuts on
rigid packs will be slower. Coconut crop expected to be normal, but correlation to palm may result in coconut oil prices
remaining firm. Looking at 7% volume growth for Parachute in FY12. Some amount of shift from coconut to other hair
oils is possible but this is not seen as a problem as Marico is present there, too.
International business: Egypt is a base for MENA manufacturing. Egypt is 3% of sales but sales serviced out of Egypt
amounts to 7-8%. Three factories shut down temporarily but two have restarted as of 6th Feb, although shipment has not
yet commenced. Apart from this problem, international business is and can grow at 20-25% pa. This quarter will see the
loss of one month’s sales for the MENA region.
Kaya: Seeing signs of recovery in India – SSS growth of 8% in Q3. Price points made more attractive with INR999 price
point per sitting. Also product sales as a percentage of revenue have gone up in India from 13% to 17% due to the
introduction of Derma Rx products. Incremental store rollout to be gradual. ME performing well, to add 3-4 stores there.
Saffola: Safflower oil has inflated but price increase of 15% taken, which is ahead of cost increase to date. Input prices
may still go up in future. Overall income tax rate for FY11e 16% and FY12e 17%.
Valuation and risks
Our target price of INR132 is based on 22x Sep-12e EPS. Over the last three years, the forward PE has averaged 21x
within a band of 14-28x. Currently, the stock is trading at 21.1x FY12 EPS. Our FY13e EPS is INR6.51, which represents
a 3-year (FY10-13e) CAGR of 18.1%. Upside risk: Margin expansion from lower raw material cost; and higher volumes in
functional foods on the back of improved consumer sentiment
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Price increases unlikely to result in volume decline
32% price increases have been taken on Parachute coconut oil due to input cost pressure. This could in turn put pressure on
volumes but they are unlikely to turn negative. Price increases are occurring across all brands and loose oils, so
competitive pricing does not change much. Marico will drop prices on small packs as soon as input cost falls; price cuts on
rigid packs will be slower. Coconut crop expected to be normal, but correlation to palm may result in coconut oil prices
remaining firm. Looking at 7% volume growth for Parachute in FY12. Some amount of shift from coconut to other hair
oils is possible but this is not seen as a problem as Marico is present there, too.
International business: Egypt is a base for MENA manufacturing. Egypt is 3% of sales but sales serviced out of Egypt
amounts to 7-8%. Three factories shut down temporarily but two have restarted as of 6th Feb, although shipment has not
yet commenced. Apart from this problem, international business is and can grow at 20-25% pa. This quarter will see the
loss of one month’s sales for the MENA region.
Kaya: Seeing signs of recovery in India – SSS growth of 8% in Q3. Price points made more attractive with INR999 price
point per sitting. Also product sales as a percentage of revenue have gone up in India from 13% to 17% due to the
introduction of Derma Rx products. Incremental store rollout to be gradual. ME performing well, to add 3-4 stores there.
Saffola: Safflower oil has inflated but price increase of 15% taken, which is ahead of cost increase to date. Input prices
may still go up in future. Overall income tax rate for FY11e 16% and FY12e 17%.
Valuation and risks
Our target price of INR132 is based on 22x Sep-12e EPS. Over the last three years, the forward PE has averaged 21x
within a band of 14-28x. Currently, the stock is trading at 21.1x FY12 EPS. Our FY13e EPS is INR6.51, which represents
a 3-year (FY10-13e) CAGR of 18.1%. Upside risk: Margin expansion from lower raw material cost; and higher volumes in
functional foods on the back of improved consumer sentiment
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