Marico: A fairly good performance

Driven by the fairly good performance of its frontline brands Parachute and Saffola, in a challenging environment, Marico has posted a satisfactory 20 per cent increase in sales in the March 2009 quarter. Part of the rise though is on account of the rupee depreciation and the inclusion of the Enaleni business. The better top line together with some savings on adspends has resulted an expansion in the EBITDA (earnings before interest tax and depreciation) margin of 330 basis points to 13.6 per cent.

For 2008-09 operating margins have remained more or less flat despite an increase in revenues of 25 per cent. Falling input prices have helped the consumer goods firm at a time when volumes have been under pressure and moreover, the company was able to take some price increases during the past year.

The skin care business Kaya, which now comprises around 85 clinics, saw a somewhat subdued growth of around 10 per cent in the March quarter, which is not surprising given that discretionary consumer spends are falling. At Rs 68, the stock trades at around 17 times estimated 2009-10 earnings and appears a tad expensive.

Marico has some strong brands and its strategy of adding value to existing products and entering new categories is a good one. However, the outlook for the current year isn’t too exciting because there could be some consumer resistance to premium products.