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Slower Profitability, Volume Growth Concern
Marico’s Q4FY11 net sales growth of 24% was in line with
our expectations. The increase was led by 10% volume
growth and was equally distributed between organic and
inorganic growth. Gross margins declined by ~900bps on
the back of 55% rise in Copra prices. However, lower SG&A
and other expenditure (% of net sales) declined by 580bps
and 77bps respectively and restricted the EBITDA margin
decline at ~350bps. Several adjustments impacted the
reported PAT; adjusted PAT grew by 14% to Rs638mn.
We maintain our FY12 estimates and introduce FY13
numbers. We retain our HOLD rating while raise TP to
Rs134 from Rs128 earlier.
Parachute and Saffola volume impacted
Marico consistently raised key products prices during FY11 to
mitigate the impact of higher raw material cost. Parachute and
Saffola volume grew by 5% and 14% in Q4FY11 and was
considerably lower than the full year growth. We see Marico
losing the price power on its flag ship brands.
Slower growth in International business
International business suffered due to unrest in most of the key
geographies and displayed ~7% and ~22% growth in Q4FY11
and FY11. We expect recent acquisition of ICP will help this
business to grow by 20-21% in next two years.
EBITDA margin under pressure
Input price pressure resulted in 350bps decline in EBITDA
margin. Marico has taken 32% cumulative price rise in FY11 but
still couldn’t pass on the full RM cost burden to the customers.
We expect full impact of price rise couple with slower growth in
input price will translate in 50bps and 28bps improvement in
EBITDA margin in FY12 and FY13 respectively.
VALUATIONS AND RECOMMENDATION
We retain our 12-month forward target multiple at 23x, slightly
lower than that of the FMCG sector. We believe this discount is
justified considering Marico’s high exposure to prices of few
commodities and a limited product portfolio. At CMP, we believe
the stock offers limited downside; we maintain our ‘HOLD’
recommendation with a TP of Rs134.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Slower Profitability, Volume Growth Concern
Marico’s Q4FY11 net sales growth of 24% was in line with
our expectations. The increase was led by 10% volume
growth and was equally distributed between organic and
inorganic growth. Gross margins declined by ~900bps on
the back of 55% rise in Copra prices. However, lower SG&A
and other expenditure (% of net sales) declined by 580bps
and 77bps respectively and restricted the EBITDA margin
decline at ~350bps. Several adjustments impacted the
reported PAT; adjusted PAT grew by 14% to Rs638mn.
We maintain our FY12 estimates and introduce FY13
numbers. We retain our HOLD rating while raise TP to
Rs134 from Rs128 earlier.
Parachute and Saffola volume impacted
Marico consistently raised key products prices during FY11 to
mitigate the impact of higher raw material cost. Parachute and
Saffola volume grew by 5% and 14% in Q4FY11 and was
considerably lower than the full year growth. We see Marico
losing the price power on its flag ship brands.
Slower growth in International business
International business suffered due to unrest in most of the key
geographies and displayed ~7% and ~22% growth in Q4FY11
and FY11. We expect recent acquisition of ICP will help this
business to grow by 20-21% in next two years.
EBITDA margin under pressure
Input price pressure resulted in 350bps decline in EBITDA
margin. Marico has taken 32% cumulative price rise in FY11 but
still couldn’t pass on the full RM cost burden to the customers.
We expect full impact of price rise couple with slower growth in
input price will translate in 50bps and 28bps improvement in
EBITDA margin in FY12 and FY13 respectively.
VALUATIONS AND RECOMMENDATION
We retain our 12-month forward target multiple at 23x, slightly
lower than that of the FMCG sector. We believe this discount is
justified considering Marico’s high exposure to prices of few
commodities and a limited product portfolio. At CMP, we believe
the stock offers limited downside; we maintain our ‘HOLD’
recommendation with a TP of Rs134.
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