Motilal Oswal: Maintain ‘buy’ on Marico

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Published: October 4, 2019 3:06:02 AM

“We hope for some recovery in overall sentiment in H2FY20 on the back of good monsoon and government-led stimulus.”

Motilal Oswal, Marico, liquidity conditions, volume growth, brand building spends, input costs, International businessDomestic business: “Soft consumption trends and tight liquidity conditions led to a much subdued quarter for each of the core and some of the new categories.”

The Management commented that “demand and consumer sentiment weakened progressively during the quarter, which manifested in slowing category growth. Further, liquidity challenges led to some correction in trade inventories and exerted pressure on channel partners investments and returns. In the traditional channel, both rural and urban faced distress. The alternative channels, however, stayed on course”.

Macro outlook: “We hope for some recovery in overall sentiment in H2FY20 on the back of good monsoon and government-led stimulus.” Domestic business: “Soft consumption trends and tight liquidity conditions led to a much subdued quarter for each of the core and some of the new categories.”

International business on track: “The International business maintained its relatively stable run with Bangladesh leading the way, while Vietnam witnessed some moderation in the home and personal care segment.”

Strong margin growth likely: “Benign input costs in the India and Bangladesh businesses as well as continued cost management steps should lead to improved profitability during the quarter, despite a rise in brand building spends and subdued top line.”

Company outlook: “The company will continue to drive sustained profitable volume-led growth over medium term, via its focus on strengthening the franchise in the core categories and driving the new engines of growth towards gaining critical mass.”

Valuation/view: Supported by a steady state healthy volume growth, a good performance of the international business, a robust new product pipeline contributing strongly to sales growth over the next two years and a benign raw material price environment, the earnings growth is likely to be ahead of peers at ~20% over FY19-21. Maintain ‘buy’ rating on the stock.

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