CMP = Rs 55 (as of April 27)
Price target: Rs 63.4
Result highlights
- In Q4FY2007 the net revenues of Marico grew by 33% year on year (yoy) to Rs396 crore, as per our estimate. The top line growth was higher in this quarter on account of the full contribution from the acquired brands of Nihar, Manjal, Camelia, Aromatic and Fiancée, and the strong growth of 21% in the focused brand portfolio (organic growth).
- The operating profit margin (OPM) declined by 210 basis points to 10.1% on account of an increase in the selling and administrative expenses, and the other expenses as a percentage of sales. Consequently, the operating profit grew by 10% yoy to Rs40.1 crore. The same was below our estimate.
- The interest cost for Q4FY2007 grew to Rs4.68 crore from Rs2.3 crore in Q4FY2006, on account of the debt taken to achieve inorganic growth.
- The net profit after the extraordinary items grew by 17% yoy to Rs28.1 crore and the earnings per share (EPS) grew to Rs0.47 (share split to Rs1).
- Marico has acquired two brands (Fiancée and HairCode) in Egypt; these will generate revenues of Rs90-95 crore in FY2008. Significantly, these brands provide 15-18% of the profit after tax (PAT) margin against that of 7-7.5% for Marico.
- This indeed will help Marico expand its OPM next year. Higher advertising spend for new brands would help the company to fuel future growth.
- The Kaya business grew by an impressive 52% yoy to Rs22 crore. It managed to achieve a positive profit before tax (PBT) in the current quarter. The Kaya business broke even on a full-year basis.
- This is a big positive because going forward the business will be contributing to the bottom line and its higher margin profile will contribute to the margin of Marico. For the full year, revenue from the Kaya business stood at Rs75 crore.
- Marico plans to open roughly 15-20 new Kaya clinics in FY2008 and wants to concentrate on increasing the utilisation and penetration levels of the Kaya products going forward.
- The stock is trading at attractive valuations of a price/earnings ratio (PER) of 22.8x FY2008E and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 15.8x FY2008E.
- I continue to remain bullish on Marico and reiterate a Buy on the stock with a price target of Rs 63.4.
