Marico

Company Has Underperformed Sensex In Past Year, May Continue To Do So In Near Term

 

MARICO'S performance was satisfactory in the December 2009 quarter. This despite the fact that price reductions have dented the growth in revenues and extra-ordinary provisions affected the bottomline. Consolidated net profit grew by 22%, lower than the estimated growth of 29%.

   Excluding the exceptional provisions, the consolidated net profit grew by 42% over the same quarter last year. The consolidated revenues grew by 8%, against market expectation of 14%. Increase in market shares of key product brands aided volume growth of around 14% for the quarter. The market's reaction to the company's performance was neutral, as the company's stock price closed flat at Rs 98.35.

   Deflation in key raw materials' costs helped the company achieve significant savings on input costs. Raw material costs as a percentage to sales dropped from 47% last year to 39% in the December quarter. This boosted profit margins. Operating margin increased by 200 bps to 14.7%.

   As has been the case with most FMCG companies during the quarter, Marico has been aggressive on its adspends. Advertising expenditure, as a proportion to net sales, has jumped from 10% a year ago to almost 13% in the December quarter.

   The company's international business, contributing a quarter of the company's turnover, showed a healthy YoY growth of 24%. Marico's presence in emerging markets like the Middle East, Africa and Bangladesh has helped it log a better growth than that seen in the domestic market. The company's Kaya skin care business is yet to show improvement in growth and swing to profits. However, the company continues to invest in the business — confident of the future growth and profitability of the business.

   The company's stock has underperformed the Sensex since the past one year and may continue to do so in the near term. Its future performance depends a lot on movement in the commodity price cycle. The input costs may not remain benign for long. This coupled with an aggressive advertising may put a strain on the company's profits. Besides, inflationary conditions may continue to dent the discretionary expenditure of consumers — reducing the growth prospects for the company's Kaya business.