The recent excise duty changes by which small packs of 200 ml and below of coconut oil will attract a duty of 8 per cent with a 35 per cent abatement is unlikely to hurt Marico too much. The effective excise duty would be around 5.3 per cent and it’s possible the industry will challenge the reclassification of the product, earlier classified under edible oil and therefore, attracting no duty.
So while the branded oils category for the industry as a whole, may lose out marginally, Marico’s brands Parachute and Nihar should be able to sustain volumes. Analysts point out that smaller packs (200 ml and below) account for around 60 -70 per cent of Marico’s sales and that about half of this would comprise packs of 200 ml. So there is an opportunity for the company to get customers to buy bigger packs of 225 and 250ml.
The process could take some time but would be well worth the effort. Even in the current downturn, the company has not reduced prices of Parachute though the price of Saffola (edible oil) has been dropped. Both Parachute and Saffola(edible oil), the firm’s frontline brands, are expected to see volumes grow by about 8 to 10 per cent in the next couple of years.
In fact, it was these brands that helped the company post a 20 per cent top line growth in the March 2009 quarter, the depreciation of the rupee and the inclusion of the Enaleni business also boosted sales.
At Rs 69,the stock trades at just under 17 times estimated 2009-10 and brokerage IDFC SSKI sees the stock trading in a band of Rs 60-80.