1. Maintain ‘neutral’ on Marico, revised target Rs 240: Motilal Oswal

Maintain ‘neutral’ on Marico, revised target Rs 240: Motilal Oswal

Marico’s consolidated sales were up 6.5% y-o-y to Rs 13 billion (est. of Rs 13.3 billion), EBITDA grew by 26.4% to Rs 2.1 billion (est. of Rs 2.1 billion) and adjusted PAT grew by 19% to Rs 1.31 billion (est. of Rs 1.37 billion).

By: | Published: May 4, 2016 5:18 AM

Marico’s consolidated sales were up 6.5% y-o-y to Rs 13 billion (est. of Rs 13.3 billion), EBITDA grew by 26.4% to Rs 2.1 billion (est. of Rs 2.1 billion) and adjusted PAT grew by 19% to Rs 1.31 billion (est. of Rs 1.37 billion). Consolidated volumes grew 10.5% led by international volumes as India volumes were marginally lower than forecast. Domestic business reported revenue growth of 4%, mainly led by Saffola (13% volume and 14% value growth), and VAHO (11% volume and 12% value growth). Sharp Market share gains were witnessed across all key segments.

Gross margins expanded 630bp y-o-y to 54.1% (est. of 52%), led by benign RM costs — copra down 41% y-o-y (down 19% q-o-q) and LLP down 25% y-o-y. However, higher adspends (up 290bp y-o-y), and staff costs (up 70bp y-o-y) restricted EBITDA margin expansion to 260bp y-o-y to 16.3%. Adjusting for Goa property sale PAT grew 19% y-o-y to Rs 1.31 (est. Rs 1.37 billion).

Consistent double digit volume growth, broad based market share gains and sharp gross margin expansion are the key positives from Q4FY16 results. Management’s guidance for soft value growth in 1HFY17 amid further 6% price cuts in Parachute in Q1FY17 (Copra prices continue to decline) leads us to cut our estimates for FY17 by 2% but we upgrade our FY18 EPS by equal magnitude. Retain ‘neutral’ with a revised target price of Rs 240.

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