Marico: Robust Volume Growth Across Segments ::PINC

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Robust Volume Growth Across Segments
Marico reported better than expected net sales growth of 29% led by
20% volume growth during the quarter. Parachute coconut oil
clocked 40% sales growth which includes 13% volume growth. The
benefit of price during Q3FY11 was only partially available during that
quarter and hence the realisation growth in Q3FY12 is higher than our
anticipation. Higher A&P spending impacted the profitability and
resulted into 68bps YoY and 45bps QoQ decline in EBITDA margin.
PAT grew by 21% to Rs842mn (PINCe Rs801mn).
We slightly increase Parachute hair oil volume growth assumption for
FY13 and FY14 owing to strong consumer response for newly
introduced 45ml and 175ml packs. We raise FY13 and FY14 estimates
by 4% and 5% respectively. We retain our 24x P/E on 12-month
forward earnings and increase TP to Rs150 (earlier Rs144) while
maintain our ‘REDUCE’ rating on the stock.
Encouraging Volume Growth
Marico registered 13%, 20% and 15% volume growth for Parachute oil,
Value added hair oil and Saffola oil respectively. Parachute oil in the
last three quarters registered encouraging 10%, 10% and 13% volume
growth and beat the competition through introduction of new packs.
Marico gained 150bps YoY market share on coconut oil to 54%. Value
added hair oil and Saffola maintained high volume growth.
International Business (IBD) Maintain Strong Growth
IBD (25% of sales) posted 39% growth that includes 16% organic and
24% inorganic growth. Bangladesh (~45% of IBD) posted 11% growth
while rest of the organic business clocked ~20% growth. We expect
higher marketing efforts to continue to maintain this high growth.
EBITDA margin under pressure
Higher A&P (164bps YoY and 300bps QoQ) spend was due to the new
product launches and higher marketing efforts for the overseas
market. We expect such marketing efforts would be required going
forward to. We anticipate EBITDA margin improvement to the tune of
~100bps during FY13-14E due to softening of input prices.
VALUATIONS AND RECOMMENDATION
On account of limited product portfolio, higher exposure to commodity
prices and moderate scope for further price hike on key brands, we
maintain Marico's P/E discount over FMCG sector. We retain our 24x
multiple on 12-month forward earnings and raise TP to Rs150 (earlier
Rs144). We maintain our ‘REDUCE’ rating on the stock.