Consolidated revenues grew 20% to Rs 20.3bn — a tad ahead of forecasts (positive variance in hair oils; slight negative overseas). Overall domestic business grew 23% (12% volume growth) on a low base; two-year revenue/volume CAGRs are 8%/2%.
Unlike peers, relevance of input cost trends appear to be a far more for Marico’s stock price performance; from a business point of view, sharp swings in copra (usually 40% of input costs) somewhat dictate the level of pricing growth, percentage margins and scope for market share gains near term. Copra prices have corrected ~15% from its recent highs (though still up 30-35% y-o-y) – according to management, margins pressures could ease in H2FY19.
There is a modest consumption uptick visible – 1) value-added hair oils growth remains healthy. 2) Parachute growth is pricing-led (29% price hikes cumulatively + 9% volume growth); we expect volumes to normalise around mid-single digit growth; pricing growth should taper-off in H2. 3) There is a marginal recovery in Saffola. 4) Growth in all smaller segments appear strong.
We use a P/E methodology to value Marico given that it is a steady growth company and is unlikely to face extreme volatility in earnings. Our target price of Rs 370 is based on 44x FY20E EPS, at a modest ~5-10% premium to the stock’s trailing average 1-year forward P/E in the last three years. The rich multiples are warranted given the company’s reasonably strong medium-to-long term outlook, solid competitive positioning and healthy cash flows/balance sheet. The multiple we ascribe to Marico is middle of the India consumer staples pack, i.e, at a premium to peers with softer growth and/or higher risks of competitive pressures, but lower than few peers with stronger business outlook, returns profile and lower commodity variations.