Earnings Report /

Marico Bangladesh: Q2 19/20: High growth continues; maintain Hold with increased TP

    Auneea Haque
    Auneea Haque

    Research Associate

    Tanay Kumar Roy
    Tanay Kumar Roy

    Research Analyst

    IDLC Securities
    24 October 2019
    Published by

    NPAT up by 38.8%: Marico’s NPAT accelerated to BDT 669mn (EPS stood at BDT21.2) surpassing our expectation. Top line double-digit growth of 14.7% yoy and gross profit margin expansion of c1,250bps yoy led this growth, offsetting the effect of a 575bps rise in marketing expense as a percentage of sales. As the earnings have exceeded our expectation, we are revising our NPAT growth upward to 40% from 34% for full-year 2019/20.

    Reiterate Hold with increased TP: We are revising our TP upward to BDT 1,920 (based on 21.4x P/E and 6x EV/Sales on 2020f) which implies an ETR of 13%.

    Revenue grew by 14.7% yoy: Marico continued its double-digit growth in top line, reporting revenue of BDT 2,491.8mn, consistent with our estimate. We believe the non-Parachute Coconut hair oil segment (non-PCNO) was the leading element with Value-Added Hair oil (VAHO) spearheading this growth. We expect Marico to leverage its strong distribution network and continue investing in marketing activities to scale up sales of the new products. Our estimated revenue growth for full-year 2019/20 is 12.6%.  

    High gross profit margin sustained: Gross profit margin was up by c1,250bps yoy reaching to 58.1%, exceeding our expectation. Cut in copra price (main raw material of Marico), increasing contribution of premium products (mainly VAHO) and price hike are likely the factors contributing to GPM expansion. Since the gross profit margin has beat our expectation and there is no sign of a bounce in copra price yet, we are revising our gross profit margin upward from 56.0% to 58.4% for full year 19/20. 

    Marketing expense on the rise: Marketing expense as a percentage of sales escalated by 575bps to c13% from 7.2%, which suggests that Marico is aggressively promoting the new products to create brand equity. We believe, the trend will continue through the second half of the year as well, and our estimate of marketing expense as a percentage of sales is 10.5% for full-year 19/20. 

    Declared BDT20/share interim cash dividend: Marico has declared BDT20/share cash dividend based on Q2 19/20 financials with a dividend payout ratio of c94%. We expect Marico to pay BDT85/share cash dividend for full-year 2019/20, with dividend payout ratio being c95%.