Marico stock rated Buy by Edelweiss with TP of Rs 368

By: |
Published: September 19, 2017 3:07:46 AM

Management believes, Marico has ample levers to sustain market leadership as well as 8-10% YoY volume spurt over the next few years. While Parachute rigid is estimated to clock 5-7% y-o-y volume growth, all other portfolios viz., Saffola, VAHO as well as Youth, are poised for post double digit volume spurt over the medium term.

Our recent meeting with Saugata Gupta, MD & CEO, Marico, bolstered our conviction in the company’s bright prospects anchored by its sharpened focus on innovation and new launches.

Our recent meeting with Saugata Gupta, MD & CEO, Marico, bolstered our conviction in the company’s bright prospects anchored by its sharpened focus on innovation and new launches. While the GST-led transition impact is largely behind, management envisages volume-led growth, 8-10% y-o-y coupled with price hikes, 4-5% y-o-y likely in H2FY18 in the domestic business in balance FY18. It also expects growth pangs in the international business, MENA region to ease and anticipates rebound from H2FY18. Management estimates domestic margin (peak ~24%) to correct in the near term owing to spike in copra prices and delay in price hikes in core Parachute portfolio.

Management believes, Marico has ample levers to sustain market leadership as well as 8-10% YoY volume spurt over the next few years. While Parachute rigid is estimated to clock 5-7% y-o-y volume growth, all other portfolios viz., Saffola, VAHO as well as Youth, are poised for post double digit volume spurt over the medium term. In international business, while Marico remains confident on Bangladesh, SE Asia and South Africa, MENA region is expected to rebound from H2FY18 (largely owing to anniversarisation of currency devaluation). Raw material prices have spiked (copra prices up ~70% YoY) with no corresponding price hikes, leading to some gross and EBITDA margin compression. Marico, however, has some levers to contain the margin hit—portfolio transition towards premium categories, implementation of Project EDGE and distribution revamp.

Marico is poised to: a) recoup volume & pricing growth in Parachute; b) benefit from innovation & market share gains; and c) post recovery in international business. At CMP, the stock is trading at 39.7x FY19E. On account of anticipated volume recovery, potential price hikes and improving macros, we revise up FY19E target PE to 45x (from 40x) and arrive at revised TP of Rs 368 (earlier Rs 344). We maintain ‘Buy/SO’.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.