Weak international business drags Marico's revenue growth

However, the domestic business performance is steady; the stock is fairly valued

Fast-moving consumer goods firm Marico posted a mixed set of numbers for the April-June quarter. Weak international performance (22 per cent of consolidated revenues) on both volume and value growth parameters was the key reason for a subdued 10 per cent year-on-year (y-o-y) growth in the company’s consolidated net sales to Rs 1,781 crore. Not only was this the lowest top-line growth for Marico in the past five quarters, it also fell short of Bloomberg consensus estimate of Rs 1,818 crore.

Domestic business, though, remained steady with volume growth of six per cent and value growth of 12 per cent in the quarter. Low single-digit growth in key markets along with a decline in revenues from Vietnam and Egypt markets were the key pressure points.

Net profit growth, though, was higher at 28.4 per cent to Rs 238 crore and was nine per cent ahead of Bloomberg consensus estimate of Rs 218 crore. Notably, a one-time, non-core profit on divestment of Marico's subsidiaries in Vietnam pushed the other income by 73 per cent y-o-y to Rs 32 crore. Adjusting for the one-off, this figure grew 24 per cent and would be still 5.6 per cent ahead of consensus expectations.

Contraction in all cost items - input costs (down 516 basis points to 43.4 per cent), advertising (down 78 basis points to 11.1 per cent), amongst others - were the key positives. These savings led to a 179 basis points y-o-y expansion in earnings before interest, taxes, depreciation and amortisation, or Ebitda, margin to 18.3 per cent. While falling copra prices aided margins in the quarter, Marico management expects copra prices to firm up. Marico’s plans to chase growth and market share gains across categories while keeping margins in a band could lead to some normalisation of margins.

Amongst key categories, Parachute and Nihar coconut oil as well as value-added hair oils segments grew 15 per cent plus each and provided the necessary fuel for growth. While the company plans to gain market share from unorganised players selling loose oil in the coconut oil segment, it aims to drive premiumisation and higher value growth in the value-added hair oils segment.

Analysts remain enthused by Marico's value-added hair oils portfolio and its focus on growth. However, at valuations of 40 times FY16 estimated earnings, the Marico scrip appears fully priced.