Overall demand environment was good in Q3FY19 with market share gains across key portfolios. The positive sentiment during the quarter was led by festive season and expectations of a stimulus from government initiatives.
Rural continues to do well on the back of good demand. Meanwhile, growth in urban was driven by newer channels (modern trade, ecommerce and CSD). Parachute grew healthily in Q3FY19, while VAHO was a tad short of expectations. Saffola remains subdued and management believes that recovery in the segment might take longer than earlier expectation.
Marico’s newer portfolios (premium hair nourishment, male grooming and healthy foods) grew in line with company’s expectation.
There were a couple of new launches during the quarter, which include (a) Hair & Care Dry Fruit Oil – a light hair-oil enriched with almond and walnut oils. The product has been introduced at a price of `55 (100 ml) in select markets of north and west India, (b) the company also rolled out a range of healthy food and beverage products under a new sub brand – Saffola FITTIFY Gourmet – focused entirely on the modern trade and ecommerce channels. The portfolio includes Moringa green tea, green coffee instant beverage mix, hi-protein breakfast cereals, hi-protein meal soups and hi-protein slim meal shakes.
Its international business saw decent growth led by portfolio diversification in Bangladesh and enhanced GTM initiatives in Vietnam, supported by reasonable growth in MENA. Three factors underpin our confidence on Marico’s earning prospects: (a) likely benign raw material environment over the next 18-24 months (Copra accounts for 40-50% of material costs), (b) strong performance of Parachute volumes in recent quarters and healthy growth prospects in the VAHO segment, and (c) good traction being witnessed on new product development.
Targeting 46x December 2020 EPS (10% premium to 3-year average) we get a target price of `465, 23% upside to the CMP.
