Friday, September 11, 2009



Impact of weak monsoon: No negatives as yet
A weak monsoon has not led to any slowdown in Marico till date and the company expects Q3 to reflect a better picture of any material impact (if any). Only 18% of total sales come from North India (large rain deficit) and thus the monsoon impact is not a big worry. Around 60% of the company’s sales are from South and West, which have seen less rain deficit. Also, the recent pick up in rainfall is a positive.

Saffola and Parachute: On track
Post a strong Q1FY10, Saffola and Parachute have been doing well. However, the company believes that Q1 was an aberration in terms of volume growth as it was backed by promotions, which will cease going forward. For FY10E, the company expects Saffola and Parachute volumes to grow ~11% and ~8%, respectively.

International business: Gaining momentum
In the beginning of FY10, Marico had envisaged its international business to grow at 15-16% (Y-o-Y) on constant currency basis. Post a strong Q1FY10, with 40% growth (Y-o-Y), management expects the number to be ~23-25% for FY10E. Bangladesh, Egypt, and GCC are gaining momentum and expected to do well.

Margin profile: Expansion to continue
For FY10E, the company expects to save around 250-300bps from dip in raw material prices, but will increase its ASP spend by 150-200bps to clock higher volume. Thus, overall EBITDA margins are likely to improve by 100bps in FY10E.

Outlook and valuations: Positive; maintain ‘BUY’
At CMP of INR 90, the stock trades at P/E of 23.1x and 19.9x and EV/EBITDA of 15.3x and 13.0x our FY10E and FY11E earnings, respectively. We remain optimistic on the company’s sustained earnings growth with new product launches (Cooling Oil and Saffola Rice) on the anvil. We maintain our ‘BUY’ recommendation on the stock. On relative return basis, the stock is rated ‘Sector Outperformer’.

To see full report: MARICO