Marico Kaya Enterprises - Invigorating Growth; Visit Note :: Edelweiss

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We recently met management of Marico Kaya (MaKE) led by CEO of India business, Mr. S Subramanian and the CFO, Mr. Dharmendar Jain. MaKE is back in the reckoning on account of renewed focus on core business services like laser (~67% contribution), cluster expansion approach (contrary to widespread expansion) and the demerger. Management mentioned Kaya Skin Bars (KSB), which were at the prototyping stage, are seeing the desired results. KSBs, being capex light, not only help in expanding the Kaya brand in new cities (particularly Tier 2 and 3), but also support RoCE. We like the measures initiated by the company to resuscitate the Kaya business, which is also validated by improved quarter results.

EBITDA margin robust at store level

A refurbished strategy to focus on core business and educating existing customers to upgrade to new high-end technology services along with rationalisation of employees, ad-spends and efficiency in operating costs like rent has seen improvement in margins (gross margin spurted by 700bps YoY in 2 years and 194bps QoQ in Q2FY15). As per management, Q2 and Q4 are the best quarters for the company followed by Q1 and Q3. Store level EBITDA margin is pegged at a strong 30% and management expects sustainable EBIT margin of 10% at consolidated level. Average ticket price for the Indian business is INR7,500; for the Middle East business it is INR24,000. Customer retention ratio at 45% has risen due to increase in proportion of loyalty programme.

Expansion, the key driver

Management expects ~15-18% overall business growth rate, with same store sales growth (SSG) of ~10%. Further, 60% of sales are by way of packages for which money is paid in advance. Management issued store expansion guidance of 15-20 KSBs and 10-12 skin clinics in India per year and 2-3 clinics in the Middle East.

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