Marico - 1QFY2013 Result Update - Motilal Oswal

Marico's 1QFY13 performance was better than our expectation. Adjusted PAT grew 45% to INR1.2b (v/s our estimate of INR1.1b), led by healthy margin expansion and higher other income.

- Consolidated sales grew 22% to INR12.6b (v/s our estimate of INR12.2b), driven by robust volume growth across key brands.

- Gross margin expanded 660bp to 49.4% due to lower copra prices; however, 300bp increase in ad spends curtailed EBITDA margin expansion at 260bp.

- Domestic volumes grew 16% - Parachute: 18%, hair oils: 25%, and Saffola: 12%. Management indicated sustainable volume growth at 9-10% in coconut oils, 15-17% in hair oils and 15% in Saffola.

- Copra prices declined 60% YoY and 10% QoQ. Though the medium-term trend in raw material prices is uncertain due to recent rise in palm oil prices, we believe Marico has enough leeway to expand margins in FY13.

- International business sales were up 17%. Organic growth was muted at 3%. Bangladesh business continues to be under pressure.

- Kaya: Same store sales (SSS) growth of 12% was lower than 4QFY12. Loss for 1QFY13 was INR73m. Product share increased to 25%. Marico has plans for a new retail identity and retail format under the Kaya brand name.

- The stock trades at 27.9x FY13E and 22.4x FY14E EPS. Maintain Buy.

Source : Equity Bulls

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