Marico Ltd. share price target

Marico will continue to see challenges in the near term on account of weak revenue growth and limited GM expansion. Weak rural growth, price cuts, reduction in channel inventory will remain inhibitors for growth recovery. Earnings trajectory will continue be soft for few more quarters. Although stock has corrected recently, we do not see near term triggers for re-rating. Marico reported weak 3Q and commentary for near term was more alarming. Weak consumer offtake, rationalising trade inventory and price cut will continue to dent near term show. Copra tailwinds will soon be behind and EBITDA growth will be challenging in the near term (model 6% EBITDA growth in the next 2 qtrs vs. 17% in the last 4 qtrs). We cut EPS by 4% FY20-22 to factor in growth challenges across portfolio and limited success for new initiatives. We had downgraded Marico in 2QFY20 (@Rs 380) as we thought most near term triggers were priced-in and earnings upcycle will moderate. Despite stock correcting over the last 3-months, we do not see any immediate trigger for upgrade. We value Marico at 35x on Dec-21 EPS, our TP is of Rs 350. Maintain NEUTRAL.

Trade channel de-stocking leads to sales de-growth Parachute, the flagship brand for the company (contributing 38% of the sales) saw de-growth of 5% in value impacted by 2% volume decline. The decline has been impacted by price cuts at the fag end of the quarter resulted in inventory de-stocking at the retail level. Moreover, with the economic slowdown, unbranded market is again gaining prominence impacting the growth of large brands. VAHO segment also witnessed a sharp 7% decline in volumes largely impacted by consumption cut down in premium price...

We are upgrading MRCO from Reduce to Accumulate following 4.6-7.1% upgrade in earnings from a lower (10-12%) than consensus average. We have not been die-hard fans of MRCO's strategy and have been critical of lack of success beyond Parachute, VAHO and Saffola as also failed acquisitions over years. We believe that MRCO is cognizant of these problems and is taking steps on pricing, distribution, urban GT, new channels, rural expansion and cost optimization the benefits of which will be visible from 2HFY21. Copra prices have bottomed out while benign input costs for VAHO should come in...

The company's Q2FY20 revenue was flattish at Rs. 1,829cr (Q2FY19: Rs. 1,837cr), with improved international operations (+8.3% YoY to Rs. 431cr) on the back of strong performance in Bangladesh (contributing 46%; constant currency growth 15.0% YoY). Whereas revenues were negatively impacted by de-growth of 2.8% YoY in domestic sales to Rs. 1,398cr, owing to the subdued volume growth (+1.0% YoY) and slowdown in overall demand. EBITDA grew by 15.8% YoY to Rs 353cr, as EBITDA margin expanded 270bps YoY to 19.3% in Q2FY20, aided by better product mix and lower input costs, despite increase in advertising & promotion expenses (+12.1% YoY). PAT...

Muted volume growth in key segments mars domestic sales Domestic business de-grew 3% in Q2FY20 on account of rural slowdown and channel de-stocking, which resulted in flat to negative volume growth for Parachute and VAHO categories. Saffola category also underperformed with tepid volume growth of 1% as the company is in the process of sorting out the assortment strategy across channels and also planning to ramp up of distribution expansion in 1 litre pack to get incremental growth in H2FY20. India business has grown a mere 4% in H1FY20 as key categories have been...

The stock re-rated in the last 3-4 quarters owing to superior EBITDA growth. Marico was our top-pick 12 months back when copra cycle was expected to reverse. We recently downgraded Marico to NEUTRAL as we believe peak copra deflationary cycle is now behind. We expect tailwinds from deflation in input costs to moderate over the next 2 quarters. As a result, most of the positives are priced-in (30% run up in the last 12-months). The stock does not deserve a further re-rating as new launches are not moving the needle and core biz volume growth remains tepid. Marico disappointed on volume growth owing to rural slowdown. Hair oil category growth was sluggish in 2Q. Copra deflation and international performance drove healthy EBITDA growth. We recently downgraded Marico to NEUTRAL as RM tailwinds are expected to moderate and near-term positives were priced-in. We value Marico at 35x on Sep-21 EPS arriving at a TP of Rs 391.

We are downgrading MRCO to Reduce given that 1) growth headwinds in Change in Estimates | Target | Reco VAHO and Saffola are becoming structural in nature 2) reduction in trade promotions in tight liquidity conditions can back fire and 3) copra price...

Marico is amidst a copra deflationary cycle and plans to capitalize by building its futuristic portfolio. The co. is reinvesting its GM expansion into higher A&P spends to support new launches. In the recent past, the co. has launched several products in categories like premium hair oil, food and male grooming. Although the products are niche and may not have a high success rate, we admire the management's aggression which will aid in driving product diversification and long-term growth. Marico reported an all round show with (1) Market share gains, (2) Sharp GM expansion (522bps), (3) Aggressive A&P; spends (+32% YoY) to support NPD and (4) Robust EBITDA growth (adj. 26%). We remain constructive on Marico and believe its performance will be superior vs. its peers in FY20. We value the co. at 35x on Jun-21 EPS arriving at a TP of Rs 395. Maintain BUY.

Easing of copra prices aided margin improvement. Maintain Accumulate. Marico's Q1FY20 revenue was in line with our estimate, but EBITDA and APAT was a beat. Volume growth was 6%, on a base of 12.5% growth. Although volume growth in Parachute was impressive at 9%, Saffola posted mere 3% volume growth. VAHO reported improvement in performance, volume growth improved to 7% in Q1FY20 vs 1% in Q4FY19. The company continues to gain traction in modern trade and e-commerce. However,...

Marico witnessed strong 9% volume growth in Parachute Rigid, which led to 246 bps market share gain in Q1FY20. The company witnessed de-growth in non-focussed mass brands as declining copra prices gives an edge to unorganised players in low price brands. Despite 25% decline in copra prices, the company has not taken any price cut except for few promotional offers, which led to 1% decline in prices. We believe 30-35% loose coconut oil market provides enough scope for the company to grow in the segment in the medium term. The company commands 60% market share in coconut...