Hold Marico; target of Rs 190: Ventura

“Marico has posted Net Sales of Rs 918 crore +23% YoY for Q3FY12 is marginally lower than our expectations. The robust growth in topline was largely attributable to the volume growth and higher realizations across the segments. Despite higher ASP spends (+77% YoY), declining input cost helped the company to improve EBITDA margin by 180 bps YoY to 12.3%, Meanwhile, PAT for the current quarter degrew by 4.1% YoY to Rs 69.5 crore. The results were not strictly comparable as PAT in Q4FY11 included income proceeds from divestment of Sweekar business (+Rs 36.2 cr), impairment of Egypt (-Rs 18.0 cr) & adjustment for revenue recognition (-Rs 29 cr) and clinic impairment (-Rs 7.7 cr) of Kaya business.”

“For FY12 the company posted a Net Sales of Rs 3,996.8 crore, a growth of 27.9% on yearly basis. Meanwhile, net profit for FY12 grew by 10.5% on yearly basis to Rs 322.1 crore. Parachute Advanced Ayurvedic oil is progressing well in Sothern and Maharashtra markets. Meanwhile Parachute Advansed Cooling Oil has achieved a market share of 8-9% in Southern markets. Extending its penetration in skin care segment (Market Size Rs 5000 crore) in domestic market, the company has launched Parachute Advansed Body Lotion at a competitive price in the last quarter. The product has captured a market share of 5% in a short span of time. Considering the needs and beliefs of Arab women the company has introduced a new range of Hairs Oils and Hammam Zait under Parachute Secrets. Acquisition of ICP Vietnam and organic growth of 13% YoY helped International Business to post revenues of Rs 267 crore for the current quarter, an impressive growth of 37% on yearly basis. Despite negative headwinds of inflation, Bangladesh business posted a growth of 11% YoY during the current quarter. With the increased volumes of Parachute Advansed Beli (Light hair oil with floral fragrance) and Parachute Advansed Cooling Oil, the company has strengthened its position (16% FY12 vs. 7% FY11) in Rs 150 crore Bangladesh value added oil market. During the current quarter, Marico also introduced new variants of value added oil under the Nihar Brand in Bangladesh market.”

“During the current year under review Kaya posted revenues of Rs 279 crore, a growth of 33% on yearly basis. Same store collection growth for the current quarter stood at 15% YoY. The Derma Rx products launched in domestic market continued to gain traction in this quarter as well. The company will continue to launch more Derma Rx products in India as well as MENA market in a phased manner. On profitability front, Kaya made a loss of Rs 29.1 crore at PBIT level FY12 against a loss of Rs 32.5 crore in FY11. The results were not strictly comparable as results for the current year as well as previous year included some adjustment being made on account of change in income recognition, prior period expenses and clinic impairment. The company expects Kaya business to achieve sustainable profitability in FY14 only.”

“Aided by increased penetration in rural markets and strong product portfolio we expect Marico to maintain its high growth trajectory in coming years as well. Besides, the recent acquisition of Paras Pharma brands such as Setwet, Zatak and Livon will help Marico strengthen its presence in rapidly growing deodorant and male grooming market. Although the price of copra (~40% of RM cost) has come down recently, the company believes that it’s a temporary phenomenon and may opt to pass on the cost benefit to consumers only in case the decline in input prices is on a sustainable basis. The management has also indicated that higher amount would be spent on Advertising and sales promotion (11-11.5% of sales) front to facilitate smooth launch of new products At CMP of Rs 177, the stock is trading at 29.4x and 24.3x of its estimated earnings for FY13E & FY14E. We recommend a HOLD on the stock with a revised price objective of Rs 190 (26x FY14E PE),” says Ventura research report.    

Institutional holding more than 40% in Indian cos

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