Marico : Strong volumes, lower margin; retain Buy :: Anand Rathi

Visit http://indiaer.blogspot.com/ for complete details �� ��


Marico
Strong volumes, lower margin; retain Buy


 Reiterate Buy. Though Marico’s net profit was 5% lower yoy, we
expect the price hikes, of 5% in Sep ’10 and ~8% initiated in
3QFY11, to drive revenues and margins and, hence, report a
better 2HFY11. We expect earnings CAGR of 27% over FY10-
12e. We retain our Buy on the stock.
 Volume growth at 15%. The company reported revenue growth
of 13% yoy on volume growth of 15%. Price cuts in previous
quarters led to a price-led 2% revenue decline. The company had
initiated price hikes of ~5% in Sep ’10. The full impact of these
hikes would be felt only from 3QFY11.

 All brands growing well. All major brands continue to do well.
Parachute, Saffola and hair oils have reported volume growth of
10%, 18% and 14% respectively. Kaya reported organic revenue
growth of 2%. International business grew 18% yoy.
 Higher raw material costs push EBITDA margin lower. With
rising raw material costs, the EBITDA margin was 150bp lower.
With no major launches or re-launches, ad spend-to-sales has
decreased 100bp. The tax rate was steady at 15.5%. Net profit was
down 5% yoy.
 Valuation. We value the stock at `158, at a PE of 24x FY12e
earnings. Our target PE is at a 35% premium to the 12-month
forward Nifty PE. (past five-year average premium: 25%). Key
risks: Higher raw material costs and competition.