We were impressed with the pioneering use of technology, which gives the company a competitive edge in terms of rural expansion. The focus on technology helps to not only make working capital and cost structure leaner, but also generate significant data for analysis (e.g. demand forecasting). The company is looking to tie up with startups offering data mining analytics.
With Maricos demonstrated strength in unbranded to branded conversion, ability to create brands with differentiated positioning (resulting in pricing power) and the advantages due to the pioneering use of technology, we believe rural sales as a proportion of total domestic sales (currently at 33%) could increase significantly over the longer term.
There is no change to our forecasts. Targeting 40x March 2019 EPS (10% premium to three-year average), we derive a revised target price of R335. The company distributes its products via ~4.6million outlets, of which ~900,000 are reached directly. The pace of direct reach expansion may be relatively slower than peers, but this is a conservative strategy adopted based on extensive analysis.
Marico was the first among peers to undertake sales automation. It was also first off the block to develop distributor and salesmen software (the company actually has a patent for the latter). Auto order management right up to the lowest levels allows sales personnel to focus more on marketing.