Marico?s results were better than our expectations?net sales, Ebitda (earnings before interest, taxes, depreciation and amortisation) and recurring PAT (profit after tax) grew 22.1%, 0.9% and 11.7%, respectively. Volume growth at 15% was impressive.
Domestic consumer business volume growth was lower at 10%. Parachute grew at a slower pace (rigid packs grew 5%), Saffola volume growth was steady at 13% and hair oils grew 31% mainly driven by market share gains. Strong volume growth of 25% in international business aided overall volume growth of 15%. Price increases across brands enabled consolidated sales growth of 22.1% YoY.
A steep rise in input costs, specifically copra, resulted in consolidated operating margin declining 257 bps (basis points) YoY to 12.2% (lowest in the past 11 quarters).
However, the recent price hike of about 8% in Parachute and expectations of softening in copra prices post
Feb-Mar?11 would aid margin improvement.
International operations, comprising about 23% of Marico?s consolidated sales, posted a robust 25% volume growth and a 33% constant currency sales growth. Adjusting for currency appreciation, reported growth was at 28%. Sales growth was strong across geographies.
Kaya business (including DermaRx) posted 40% sales growth. Without DermaRx, same clinic growth stood at 10% and operating losses came down to Rs 9 m.
Profitability in DermaRx resulted in overall operating profit of Rs 41 million for the Kaya business.
At the current FY12e P/E (price-to-earning) of 23.4x (times), Marico trades at a marginal premium of 9% to its five-year median, which is justified given its robust FY11-13e EPS CAGR (earnings per share, compound annual growth rate) of 24.4%. We value it at a forward P/E of 22x, leading to a 12-month price target of Rs 142. Reiterate Outperform.
?Standard Chartered