Reviews

In this edition, we have reviewed Marico Ltd. and KCP Ltd. We suggest our reader-investors to HOLD Marico Ltd. and KCP Ltd.

We had recommended Marico Industries in Volume 36, Issue No. 22 dated September 27 to October 10, 2021 under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹560. We had recommended the stock on the basis of robust distribution network, lesser debt, and higher ROCE. Marico Limited is a significant consumer goods company in India, specialising in worldwide beauty and health. Hair care, skin care, edible oils, immunity boosting and healthy foods, male grooming, and fabric care are just a few of the categories where it nurtures leading brands.

It has factories in Puducherry, Perundurai, Jalgaon in India. The company’s quarterly consolidated financials shows that net sales increased by 13.43 per centin Q3FY22 to ₹2,407 crore as compared to ₹2,122 crore in Q3FY21. The operating profit climbed to ₹453 crore in Q3FY22 from ₹437 crore in Q3FY21 i.e. a 3.66 per cent rise. Similarly, the net profit rose to ₹317 crore in Q3FY22 from ₹312 in Q3FY21, gaining only 1.6 per cent. The annual performance of net sales shows decent returns of 10.02 per cent in FY21 of ₹8,048 crore as compared to ₹7,315 crore in FY20.

The operating profit swelled to ₹1,685 crore in FY21 as compared to ₹1,593 in FY20. Subsequently the annual net profit showed a gain of 15.15 per cent in FY21, surging to ₹1,201 crore as opposed to ₹1,043 crore in FY20. The company saw an EBITDA improvement despite margin contraction with falling edible oil prices and off-season falling margins. Its EBITDA has been recovering sequentially, rising 4.4 per cent YoY to ₹431 crore (1.9 per cent QoQ), benefiting from higher sales realisations with higher volumes amidst growing domestic and international demand.

Also, its international portfolio grew 19 per cent YoY. Marico is taking proactive pricing actions in core brands, which will help drive volume growth in the ensuing quarters. It has launched Parachute Advanced Onion Hair Oil and Marico Jataa for Men as well as Ayurvedic Hair Growth Oil to increase its presence in the anti-hair fall segment. The PAT was at ₹317, crore up 1.7 per cent YoY. Sales were up 13.4 per cent YoY, entirely contributed by pricing growth. Marico’s share price has given 85 per cent return in the last five years from January 2017 to January 2022. There has been a robust growth in its food portfolio, clocking healthy sales in FY22. Hence, we recommend HOLD. 

We had recommended KCP Ltd. in Volume 36, Issue No. 22, dated September 27 to October 10, 2021 under the ‘Low Price’ segment. The recommended price for the stock was ₹139. We had recommended the stock on the basis of decreasing debt, decent dividend payout and low P/E multiple. The company’s technology portfolio provides cutting-edge services and state-of-the-art facilities and latest process trends that are applied in areas such as critical industrial equipment for mineral processing and chemical industries, steel plants, space research applications and nuclear/hydro power installations.

KCP, with its technology and project management capability, has set up over 40 sugar plants and 12 cement factories in India and overseas. It has been a pioneer in developing the sugar industry in Vietnam since the nineties as a supplier of sugar machinery to various plants. On the invitation of the Vietnam government to develop sugarcane. Since then it has expanded its capacity to 10,000 TCD.

Analysing the financial performance of the company, we find that in the recent quarter its net profit climbed by 15.62 per cent from ₹440.95 crore in Q3FY21 to ₹509.81 crore in Q3FY22. However, the operating profit slipped by 25.16 per cent in Q3FY22 to ₹61.51 crore as compared to Q3FY21 which was ₹82.19 crore. Consequently, the net profit also plunged by 21.26 per cent to ₹25.34 crore in Q3FY22 from ₹32.19 crore in Q3FY21. The annual performance of the company shows solid positive results. The net profit presented great results with growth of 20.38 per cent i.e. to ₹1,713.75 crore from ₹1,423.59 crore in FY20. 

The operating profit showed astounding results, gaining by 97.32 per cent in FY21 and rising to ₹395.80 crore as compared to ₹200.59 crore in FY20. The net profit shot up to the moon, giving returns of up to 225.41 per cent in FY21. The net profit reported was ₹188.77 crore as opposed to ₹58.01 crore in FY20. To identify and evaluate risks and opportunities, the company has a robust risk management framework in place. This framework aims to improve the company’s competitive advantage by increasing transparency and minimising any negative impact on business objectives.

Limestone being the key raw material used in the production of cement, the company must ensure its continuous and long-term supply. A majority of the company’s mining leases have been extended through March 31, 2052, assuring sufficient limestone reserves to meet the needs of its facilities. The Board of Directors also announced that a dividend of ₹2 per equity share would be paid for the fiscal year ending March 31, 2021. KCP Limited’s bank loan facilities and other debt facilities have been upgraded to CRISIL A/Stable from CRISIL A-/Stable). Hence, we recommend HOLD. 

(Closing price as of Apr 29, 2022)