Marico: Healthy volume growth

Top-line growth was affected by reduction in input prices, which the company partly passed on to consumers. 

Marico’s results for the March 2010 quarter are a bit disappointing, given the subdued revenue growth of 6.4 per cent year-on-year (to Rs 602 crore) and an uninspiring margin expansion. The subdued revenue growth, however, is consequent to the company partly passing on the decline in prices of inputs like copra (down by an average 20 per cent in 2009-10; down 9 per cent in the quarter) and safflower oil (down 22 per cent in 2009-10) to consumers. The reduction in input prices led to gross margins rising over 600 basis points. However, the company raised its advertisement and sales promotion expenditure by 63 per cent, the benefits of which were felt in the form of higher volumes and gains in market share in some categories. 

Overall volume growth was healthy at 14 per cent. For Parachute, it stood at about 10 per cent and for Saffola around 13 per cent. Its value-added hair oils business clocked volume growth of 27 per cent. 

Its international business, which accounts for about a fourth of sales, also performed well with sales rising 16 per cent. The growth rates would have been higher at 22 per cent but for the rupee’s appreciation. 

Marico’s Kaya skincare business continued to play a spoilsport. While revenues rose about 7 per cent due to opening of new clinics, same-clinic sales were down 5 per cent. The company provided Rs 5.7 crore towards withdrawal of Kaya Life (weight management solution), leading to a loss of Rs 5.3 crore. Going ahead, the company is taking initiatives to improve Kaya’s performance. Nevertheless, its breakeven could still be some time away. 

Overall, Marico’s operating profit margins inched up 80 basis points to 14.1 per cent and net profit grew 15 per cent to Rs 51.15 crore in the quarter. 

On the back of product innovations and deeper penetration into rural areas, the company’s domestic business is expected to grow at healthy rates, while its international business is seen clocking 20 per cent-plus sales growth in 2010-11. Its consolidated earnings are also seen rising 20-22 per cent in 2010-11. 

At Rs 107.25, down 4.7 per cent from pre-result levels, the stock trades at a price to earnings of 22.8 times estimated 2010-11 earnings and looks fairly valued.