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Quarter of exceptionals
Marico’s 4Q consol. Ebitda declined 7% YoY to Rs788m, 13% lower than
estimates. Revenues grew by 24% with underlying volumes growing at
just 5% (mainly due to a sharp price increase in hair oils). Ebitda margins
declined 350bps due to surge in input costs (mainly copra). While we
continue like Marico’s leadership position in its core categories, the 21%
ytd outperformance and FY12CL PE multiple already builds in optimism
on copra price correction. Downgrade to U-PF.
4Q performance below estimates
Marico’s consol. Ebitda declined 7% YoY to Rs788m, 13% below our
estimates; revenues grew by 24% YoY with underlying organic volume growth
of 5%. While gross margins contracted by a sharp 900bps YoY due to a surge
in input prices (mainly copra), Ebitda margin decline was restricted at
350bps, thanks to a 580bps decline in A&P, tight cost control, operating
leverage benefit. Marico’s reported earnings however rose 40% YoY to
Rs716m driven by series of exceptionals aggregating to Rs630m (pre-tax).
Margins may remain under pressure during 1HFY12
Prices of key input, copra (~40% of input costs) surged 85%+ YoY (~23%
QoQ) which led to a sharp decline in gross margins. While the management
believes that copra prices have peaked 1H margins will be subdued. The
company effected 32% price hike in flagship brand, Parachute, which was
lower than cost push; we also note that sharp hikes led to a deceleration in
volume growth which came in ~5% YoY in 2HFY11 (cf. 13% in 1H).
Deceleration in international business growth; improvement in Kaya
Growth rates in international business (~23% of topline) slowed down to 24%
with volumes growing +13%, partially due to issues in the MENA region.
Kaya’s reported revenue growth came in at 41% with organic growth at 11%
(ex-Derma); for the full year FY11, organic revenue growth was at 7% YoY.
We note that the same store sales growth remained positive in 4Q (+6%
YoY), which is also encouraging. The business however continues to remain
loss marking (ex-Derma loss at Rs140m in FY11).
Downgrade to Upf post 21% ytd outperformance
Despite a 32% price hike, the company’s 4Q Ebitda declined by 7% YoY
during 4Q due to the intense RM cost pressure. We believe that ytd
outperformance of 21% and 25x FY12 PE multiple already builds in optimism
on copra price correction and risk to earnings appears on the downside. Our
4% earnings upgrade for FY12 and FY13 pertains to the reduction of excise
duty provisioning on up to 200ml packs – on management guidance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Quarter of exceptionals
Marico’s 4Q consol. Ebitda declined 7% YoY to Rs788m, 13% lower than
estimates. Revenues grew by 24% with underlying volumes growing at
just 5% (mainly due to a sharp price increase in hair oils). Ebitda margins
declined 350bps due to surge in input costs (mainly copra). While we
continue like Marico’s leadership position in its core categories, the 21%
ytd outperformance and FY12CL PE multiple already builds in optimism
on copra price correction. Downgrade to U-PF.
4Q performance below estimates
Marico’s consol. Ebitda declined 7% YoY to Rs788m, 13% below our
estimates; revenues grew by 24% YoY with underlying organic volume growth
of 5%. While gross margins contracted by a sharp 900bps YoY due to a surge
in input prices (mainly copra), Ebitda margin decline was restricted at
350bps, thanks to a 580bps decline in A&P, tight cost control, operating
leverage benefit. Marico’s reported earnings however rose 40% YoY to
Rs716m driven by series of exceptionals aggregating to Rs630m (pre-tax).
Margins may remain under pressure during 1HFY12
Prices of key input, copra (~40% of input costs) surged 85%+ YoY (~23%
QoQ) which led to a sharp decline in gross margins. While the management
believes that copra prices have peaked 1H margins will be subdued. The
company effected 32% price hike in flagship brand, Parachute, which was
lower than cost push; we also note that sharp hikes led to a deceleration in
volume growth which came in ~5% YoY in 2HFY11 (cf. 13% in 1H).
Deceleration in international business growth; improvement in Kaya
Growth rates in international business (~23% of topline) slowed down to 24%
with volumes growing +13%, partially due to issues in the MENA region.
Kaya’s reported revenue growth came in at 41% with organic growth at 11%
(ex-Derma); for the full year FY11, organic revenue growth was at 7% YoY.
We note that the same store sales growth remained positive in 4Q (+6%
YoY), which is also encouraging. The business however continues to remain
loss marking (ex-Derma loss at Rs140m in FY11).
Downgrade to Upf post 21% ytd outperformance
Despite a 32% price hike, the company’s 4Q Ebitda declined by 7% YoY
during 4Q due to the intense RM cost pressure. We believe that ytd
outperformance of 21% and 25x FY12 PE multiple already builds in optimism
on copra price correction and risk to earnings appears on the downside. Our
4% earnings upgrade for FY12 and FY13 pertains to the reduction of excise
duty provisioning on up to 200ml packs – on management guidance.
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