Marico shines on strong volumes and cooling :: Reliance Capital

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Marico shines on strong volumes and cooling Copra prices
Key highlights of the result
The yoy comparison for Marico is not valid as the current quarter includes the
financials of International Consumer Product (ICP) and Derma Rx.
 Top-line growth strong, aided by volume growth despite price hikes: Marico
reported robust 29% yoy growth in its top-line, aided by strong volume growth
(overall volume growth of 20% with organic volume growth at 13% yoy) and
absorption of price hikes taken in the previous quarters. In terms of category, the
hair oil category grew ~40% yoy on account of rural thrust and higher amla hair
oil growth duly supported by volume growth of ~18-20% in the rigid packs of
Parachute. Saffola registered a growth of ~29% yoy aided by ~14-15% increase
in volumes. The International Business (IBG) of the company grew by a stellar
39% yoy (including the forex impact and currency depreciation; organic growth of
IBG stood at ~16% yoy). Kaya reported revenue growth of ~21% yoy (not
comparable on yoy basis due to the change in accounting policy for revenue
recognition in Kaya) to Rs75cr with same store collection in India and the MENA
region at ~15%.
 Marico reinvests savings in gross margin behind its brands: Marico reported
gross margin expansion of 114bp yoy as copra prices showed signs of softening.
However, OPM registered contraction of 68bp yoy as the company reinvested
the benefits of gross margin expansion behind higher brand spends, registering
higher advertisement expense (up 164bp yoy; Marico is test marketing Saffola
Oats savories and launched Parachute Body Lotion, which has already garnered
a market share of ~5%). Staff cost also registered an increase of 83bp yoy,
however, savings in other expense (down 66bp yoy) curtailed further margin
contraction.
 Earnings growth aided by trickle-down effect of high price realization: Earnings
reported a growth of 21.3% yoy to Rs86cr primarily aided by higher EBITDA (up
22.1% yoy aided by trickle-down effect of higher realization) and other income
(up 33.8% yoy to Rs9.2cr). Increase in depreciation (up 28.9% yoy) and interest
expenses (up 7.4% yoy) restricted further increase in earnings.
Outlook and Valuation
Post the 3QFY2012 results, we have upgraded our revenue estimates by 3–4% over
FY2012–13E to factor in consistent double digit volume growth across the board,
while maintaining our margin estimates. For FY2011–13E, we expect CAGR of
26.6% and 35.5% in net revenues and recurring PAT respectively. We expect the
margins to improve for the company in FY2013E from the current 11-12% margins.
At CMP, the stock is trading at 23xFY2013E EPS of Rs7.1 which is fair and captures
the positives of the result. Hence, we are Neutral on the stock with a fair value of
Rs163.
Risks to the view
 Slowdown in the volume growth of the company could impact our estimates
 Revenue from IBG is subject to political turmoil and exchange rate fluctuation