Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Marico (MRCO)
Consumer products
Price increases are a demonstration of strong brand equity. 3QFY11 was marked
with price hikes taken by Marico across segments to manage margins – the highest
increase being taken in Parachute of 24%. 3QFY11 results were better-than-expected.
Underlying consolidated volume growth was 15% and pricing growth was 7%. EBITDA
margin was supported by Derma Rx and Marico Bangladesh operations. ADD.
India volumes strong at 10%, international business provides profitability buffer
Marico reported consolidated net sales of Rs8.2 bn, (+22%, KIE estimate Rs7.7 bn), EBITDA of
Rs1.1 bn (-1%, KIE estimate Rs1.1 bn) and PAT of Rs805 mn (+8%, KIE estimate Rs786 mn).
At consolidated sales level, volume growth during the quarter was 15%. Key brands Parachute
(rigid packs) and Saffola grew by 5% and 13% in volume terms respectively. Driven by rising
price of copra (up 62% yoy), the company has taken 24% weighted average price hike in
Parachute between August to January in four tranches (of which 5% was taken in December
and 7% in January – hence impact of the same would not have been captured in 3QFY11
results). Safflower oil and rice bran were up 3% and 25% respectively during the quarter and
the company took 12% price hike in Saffola.
Value added hair oil portfolio showed strong growth of 31% in volume terms partially
benefitting from a late Diwali in 2010 versus 2009. With 47% rise in LLPO price, the company
has taken ~9% price hike in this portfolio. The relatively higher price increase in CNO segment
is driving better growth in value added hair oil, in our view.
International business reported 33% growth in sales value and 25% growth in sales volume
(28% in constant currency terms). EBITDA margin for international business is about 11.5% and
management expects it to reach overall company margins in ~two years.
Kaya reported overall growth of 40% and without Derma Rx sales grew by 11% with same
clinic growth at 10% in 3QFY11. The company has started introducing products from the
Derma Rx range and the share of products has increased to 17% from 13%. Focus on
affordability along with aggressive on-the-ground activation programs are driving Kaya’s
growth, in our view.
Timing mismatch between price hikes and input cost inflation led to 300bps decline in
consolidated EBITDA margin to 13.4%– material cost up by 515bps. The company
curtailed adspends (164bps), staff cost (27bps) and other expenditure (20bps) to support
margins. At a standalone level, EBITDA margin was down 578bps to 12.7% primarily due
to 650bps increase in material cost. Consolidated EBITDA margins were supported by
Derma Rx and Marico Bangladesh operations
Lower effective tax rate at 14.2% on account of MAT credit arrested PAT margin decline
to 127bps
Our key takeaway from the quarter results is the pricing power exhibited by the company to
limit pressure on margins. It has taken price hikes across categories to pass on the burden of
input cost inflation.
In our view, Parachute is largely a branding game (a commodity product commanding
brand value due to excellent marketing), and given the strong brand loyalty for the
product and the narrowing gap with loose oil (in an input cost inflationary scenario, local
players are compelled to pass on the higher cost burden) the company would likely be
able to maintain overall growth rates.
Similarly in Saffola it continues to maintain premium over loose oil and in hair oil it has
taken price hikes in line with the industry.
However, given Marico’s history of focusing on volume driven growth rather than pricing
growth, we have assumed that the company will not entirely pass on the input cost
inflation and hence model a 30 bps decline in EBITDA margins in FY2011E.
Our positive bias on Marico remains….Maintain ADD, TP Rs140
We maintain our ADD rating and increase TP to Rs140 (Rs130 previously). Building in higherthan-
expected price increases, our EPS estimates are upgraded by ~5% – Rs5.6 and Rs6.5
for FY2011E and FY2012E, respectively. At 22XFY2012E, Marico trades 10% lower than the
average consumer sector multiple and we believe that most of the worries regarding input
cost inflation are already priced in.
We like the unique ability demonstrated by Marico in (1) building a strong domestic portfolio
with good franchise value, (2) meaningfully differentiated offerings in the portfolio, (3) good
pricing power, (4) presence in niche segments, (5) good growth opportunity in international
markets and (6) successful inorganic growth track record.
Key risks are 1) higher than expected input cost inflation 2) exposure to currency risk and 3)
lack of meaningful success in new ventures.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Marico (MRCO)
Consumer products
Price increases are a demonstration of strong brand equity. 3QFY11 was marked
with price hikes taken by Marico across segments to manage margins – the highest
increase being taken in Parachute of 24%. 3QFY11 results were better-than-expected.
Underlying consolidated volume growth was 15% and pricing growth was 7%. EBITDA
margin was supported by Derma Rx and Marico Bangladesh operations. ADD.
India volumes strong at 10%, international business provides profitability buffer
Marico reported consolidated net sales of Rs8.2 bn, (+22%, KIE estimate Rs7.7 bn), EBITDA of
Rs1.1 bn (-1%, KIE estimate Rs1.1 bn) and PAT of Rs805 mn (+8%, KIE estimate Rs786 mn).
At consolidated sales level, volume growth during the quarter was 15%. Key brands Parachute
(rigid packs) and Saffola grew by 5% and 13% in volume terms respectively. Driven by rising
price of copra (up 62% yoy), the company has taken 24% weighted average price hike in
Parachute between August to January in four tranches (of which 5% was taken in December
and 7% in January – hence impact of the same would not have been captured in 3QFY11
results). Safflower oil and rice bran were up 3% and 25% respectively during the quarter and
the company took 12% price hike in Saffola.
Value added hair oil portfolio showed strong growth of 31% in volume terms partially
benefitting from a late Diwali in 2010 versus 2009. With 47% rise in LLPO price, the company
has taken ~9% price hike in this portfolio. The relatively higher price increase in CNO segment
is driving better growth in value added hair oil, in our view.
International business reported 33% growth in sales value and 25% growth in sales volume
(28% in constant currency terms). EBITDA margin for international business is about 11.5% and
management expects it to reach overall company margins in ~two years.
Kaya reported overall growth of 40% and without Derma Rx sales grew by 11% with same
clinic growth at 10% in 3QFY11. The company has started introducing products from the
Derma Rx range and the share of products has increased to 17% from 13%. Focus on
affordability along with aggressive on-the-ground activation programs are driving Kaya’s
growth, in our view.
Timing mismatch between price hikes and input cost inflation led to 300bps decline in
consolidated EBITDA margin to 13.4%– material cost up by 515bps. The company
curtailed adspends (164bps), staff cost (27bps) and other expenditure (20bps) to support
margins. At a standalone level, EBITDA margin was down 578bps to 12.7% primarily due
to 650bps increase in material cost. Consolidated EBITDA margins were supported by
Derma Rx and Marico Bangladesh operations
Lower effective tax rate at 14.2% on account of MAT credit arrested PAT margin decline
to 127bps
Our key takeaway from the quarter results is the pricing power exhibited by the company to
limit pressure on margins. It has taken price hikes across categories to pass on the burden of
input cost inflation.
In our view, Parachute is largely a branding game (a commodity product commanding
brand value due to excellent marketing), and given the strong brand loyalty for the
product and the narrowing gap with loose oil (in an input cost inflationary scenario, local
players are compelled to pass on the higher cost burden) the company would likely be
able to maintain overall growth rates.
Similarly in Saffola it continues to maintain premium over loose oil and in hair oil it has
taken price hikes in line with the industry.
However, given Marico’s history of focusing on volume driven growth rather than pricing
growth, we have assumed that the company will not entirely pass on the input cost
inflation and hence model a 30 bps decline in EBITDA margins in FY2011E.
Our positive bias on Marico remains….Maintain ADD, TP Rs140
We maintain our ADD rating and increase TP to Rs140 (Rs130 previously). Building in higherthan-
expected price increases, our EPS estimates are upgraded by ~5% – Rs5.6 and Rs6.5
for FY2011E and FY2012E, respectively. At 22XFY2012E, Marico trades 10% lower than the
average consumer sector multiple and we believe that most of the worries regarding input
cost inflation are already priced in.
We like the unique ability demonstrated by Marico in (1) building a strong domestic portfolio
with good franchise value, (2) meaningfully differentiated offerings in the portfolio, (3) good
pricing power, (4) presence in niche segments, (5) good growth opportunity in international
markets and (6) successful inorganic growth track record.
Key risks are 1) higher than expected input cost inflation 2) exposure to currency risk and 3)
lack of meaningful success in new ventures.
No comments:
Post a Comment