Companies & Sectors
IiAS advices voting against ACC’s proposal to increase royalty to Holcim

ACC's margins have fallen to 18% in 2011 from 27.3% in 2007, the period in which it paid know-how fees to Holcim. Now the cement maker is proposing to increase the fees by almost two-folds without disclosing additional benefits it would receive from its parent

Institutional Investor Advisory Services (IiAS) has advised shareholders to vote against ACC’s proposal to increase technical knowhow fees to its parent Holcim.


Even though seeking shareholder approval (which is non-mandatory as per current regulations) is a right step towards good governance, IiAS says it find that the know-how fees will increase substantially (almost two-fold) after the modification. “ACC has not disclosed any additional benefits which it may or would derive in order to justify such a significant hike in payments,” the advisory firm said in a note.


The Holcim group (controlling shareholders of ACC) currently provides various research and training modules to Ambuja aimed at enhancing its “knowledge repository” and  “strengthening the business model”. The charge for such services is borne by ACC and reflected as training and technical consultancy fees in the P&L account. The payments are made on a case-to-case basis, which amounted to 0.6% of net sales for the year ended December 2011.


ACC is proposing to adopt a more streamlined pricing model and fix the technology and knowhow charges at 1% of net sales from 1 January 2013 as it believes that such a mechanism will better reflect the benefits derived from these services.


“Investors should note that the margins have fallen from 27.3% in 2007 to 18% in 2011—over which period, Holcim charged Rs240 crore as technical know-how fees. IiAS believes there is little to justify aligning royalty to sales, especially when Holcim does not even use its brand. Paying ‘royalty’ only if the 2007 EBIDTA margins are exceeded may be equitable to minority investors,” the advisory firm said.


ACC, part of the Holcim group, is one of India’s largest manufacturer of cement and concrete, with an installed capacity to manufacture 28.7 million metric tonnes of cement per annum.

IiAS said, considering that the promoters (Holcim) already have 50.3% stake ni the company, it at least expects the cement maker to pass a special resolution requiring 75% approval from all shareholders, similar to recent royalty proposals of Rolta India.


Relaxo Footwears disappoints; net sales up only 9%

Relaxo Footwears, an ambitious upstart footwear company, has posted disappointing results amidst tight economic climate and increased competition

We had written about Relaxo Footwears (Relaxo) in our Moneylife issue dated 4 October 2012 ( The company has announced its third quarter results for fiscal 2013 and it was disappointing. Net sales were up only 9% year-on-year (y-o-y) for the December 2012 quarter, at Rs224.19 crore when compared to the corresponding quarter last year.
Likewise, operating profit rose only 7% y-o-y to Rs19.94 crore for the quarter compared to Rs18.70 for the year ago period. However, net profit crept into negative territory, only barely, when it was down nearly 1% at Rs5.97 crore.

A deeper analysis into the numbers revealed interesting facts about Relaxo’s quarterly results. We examined the pattern of net sales and found out that it was the first time the company has reported single digit growth in net sales (9%) in more than three years. This is less than the three-quarter y-o-y average growth rate of 15%. Its operating profit numbers are worse still, growing far less than the three-quarter y-o-y average growth rate of 28%. Despite this, the scrip is quoting at somewhat premium rates after its price shot up substantially over the last one year. The market capitalisation is quoting at over 12 times its operating profit while return on equity is an impressive 29%.

Relaxo Footwear owns some of the well known brands such as Flite, Sparx, Hawaii, and competes with the bigger likes of Bata and Liberty. It has roped in two Bollywood stars—Katrina Kaif and Akshay Kumar—to endorse its brands, hoping that it would give much-needed visibility and boost to its brand names. One could call this company an upstart, with the way it is approaching the marketplace and also with its ambitious advertising. It has managed to take a commodity product—footwear—and make it not only appealing but also affordable to the aspiring middle-class. Unfortunately, as the economic climate is challenging, many middle-class customers are putting off discretionary spends and footwear is no exception.

We had recommended this stock a few times but we felt it was overvalued, and still is. We felt the stock was worth buying at Rs647. Right now it is Rs770, down nearly 5% at time of writing this piece.

Check here for our analysis on other company results.


Marico records 9% growth in sales volume in domestic business in the third quarter FY13

Slowdown is impacting the rate of acquisition of new consumers for Marico, which is showing up in sales volume growth in segments like Saffola edible oil, says Nomura Equity Research

Marico reported Q3FY13 results that were 7.5% lower than expectations at the net sales level, but higher gross margin improvement led to EBITDA coming in 2% ahead of Nomura’s estimates with net income largely in-line. Volume growth in the domestic business was 9%, although parts of the portfolio, such as Saffola edible oils (4% volume growth), saw a significant slower growth. In these segments like Saffola edible oils, the slowdown is impacting the rate of acquisition of new consumers, which is showing up in volume growth. This is based on the analysis of the third quarter results of Marico by Nomura Equity Research.


The international business was a disappointment, with the overall segment continuing to report slow growth of 3%. While gross margin performance was positive in the quarter, the slowdown in volume growth would be a concern, in Nomura’s view.

Nomura expects a significant increase in advertising and promotional (A&P) spends going forward. Marico trades at 23x FY15F P/E versus mid-cap peers such as Godrej Consumer at 20.5x and Dabur India at 20.6x. Nomura maintains its ‘Neutral’ rating on Marico.


Key highlights from Q3FY13 results of Marico include:


(a) Net sales of Rs11.64 billion, up 11% year-on-year. Organic volume growth in the domestic business during the quarter was 9%. 


(b) Gross margins improved by 420 basis points year-on-year to 52% as input prices continued to be benign. Copra prices were down 23% on a y-o-y basis; however, they have started to see some uptrend recently. Prices of safflower oil were up 52%, while rice bran oil was down 1% on a year-on-year basis. 


(c)EBITDA came in at Rs1.62 billion with margins +215 bps year-on-year. As expected, advertising & promotion spends remained high (150 basis points increase year-on-year), which it is believed will continue to remain at elevated levels as the company supports existing brands and youth brands such as Set Wet, Zatak and Livon. 


(d) Adjusted net profit came in at Rs1.023 billion, up +21.6% year-on-year


Segmental highlights from Q3FY13 results include


(a) Volume growth in the Parachute hair oils segment was 6%. As at the end of CY12, Parachute and Nihar together had a market share of 57.8% in the Indian Parachute hair oil segment, up 390 basis points year-on-year.


(b) The Kaya business achieved a turnover of Rs785 million, growing by 5% on a year-on-year basis. Kaya business in India and the Middle East achieved same store sales growth of 4% during the quarter.


(c)Youth brands (Set Wet, Zatak and Livon) recorded revenues of Rs430 million during the quarter, growing by 18% year-on-year.


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