Marico - 4QFY13 Results Update - Motilal Oswal

- Consolidated sales grew 9.7% to INR9.98b (v/s est of INR10.3b). Domestic sales grew 12% (6% organic growth), led by 14% volume growth (8% organic growth) while International sales declined 8% in constant currency terms.

- Domestic organic volume growth at 8% was a well below the recent trend of 12-13%,with 5% growth in Parachute rigid packs, 24% growth in value added Hair Oils, and 5% growth in Saffola.

- Cons gross margin expanded 380bp to 55.8% while EBITDA margin was flat at 12% due to higher ad expenses (up 300bp) and other expenses (up 70bp).

- Higher tax rate (up 230bp) and flattish other income resulted in flat bottomline at INR723m (est INR910m).

- International sales declined 8% in constant currency due to sluggish sales in MENA. This is despite strong recovery in Bangladesh, with 21% revenue growth. The management has guided ~25% revenue growth in MENA in FY14.

- Kaya reported 15% and 21% revenue growth for 4QFY13 and FY13. Same store sales growth of 12% for FY13 was a significant improvement over FY12. Demerger of Kaya is likely to be completed by October 2014.

Valuations rich; maintain Neutral

- Though the management has guided for better volume performance in FY14, we believe lack of pricing levers will be a major challenge. While our longterm preference for MRCO's multiple growth driver model is unchanged, weakening volume growth in the context of rich valuations constrain us from getting more bullish in the near term.

- We had downgraded the stock to Neutral post 3Q results, citing expensive valuations and moderating volume growth. MRCO trades at 29.8x FY14E and 23.9x FY15E EPS. Maintain Neutral with target price unchanged at INR250.

Source : Equity Bulls

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