Marico Ltd. share price target

Marico's (MRCO) 2QFY21 earnings were largely in line, barring the 11% volume growth (v/s est. 7.3%). Over the past year, MRCO has witnessed remarkable recovery in its key segments Parachute, Saffola and more recently in case of VAHO. Importantly, the outlook remains strong with guidance of 8-10% volume growth in 2HFY21 as well. While the stock is up 40% since our upgrade in Mar'20, robust sales outlook and inexpensive valuations (37x FY22E, 20% discount to peer average),...

We cut FY21/22/23 EPS estimates of MRCO by 2.3%, 0.8%, 1.8% even as Change in Estimates | Target | Reco MRCO remains optimistic on growth led by Edible oil, Foods portfolio, Bangladesh and Vietnam. Parachute and VAHO seem well poised for growth...

Parachute rigid packs to maintain 5-7% volume growth, while Saffola edible oil would achieve low-teens volume growth in the near to medium term. Though higher copra prices would impact gross margins in the near term, operating efficiencies would help mitigate impact on OPM. We have broadly maintained our earnings estimates for FY2021/22/23E. We retain a Buy on the stock with an unchanged price target of Rs. 420. Marico's consolidated revenues grew by ~9% in Q2FY2021 driven by an 11% volume growth in the domestic business and 7% constant currency growth in the international business....

Barring VAHO (+4%), Parachute (+10%) and Saffola (+20%) reported double digit volume growths, was encouraging. Saffola continues to outperform with 16/20% value/volume growth....

Revenue is expected to recover to mid-to-high single digits in Q2FY2021 from 3% in May-June (and an 11% decline in Q1FY2021). Core brands Parachute coconut oil have recovered and registered sales that is better than pre-COVID levels (in July-August); Saffola edible oil continues to get good demand and is expected to register an 8-12% volume growth. Conservative ad-spends and stringent cost-saving measures would help company save Rs. 150 crore in FY2021; consolidated OPM to remain at over 20%. Stock is trading at 36x its FY2022E earnings, which is at discount to large-cap...

Gross margins expanded 360bps in FY20 amidst benign raw material environment. Average domestic copra prices declined 9% YoY in FY20. Rice bran oil/ LLP/HDPE were down 4%/8%/24% YoY respectively. The company expects mildly bearish trends in copra prices for FY21E given the sudden fall in demand for coconuts. It has taken a 5-6% price cut in Parachute through promotional pricing which will help it gain share from unbranded players. In the near term, the company will reallocate spends from nonmedia to media channels. A&SP; spends were 10% of sales in FY20. Rationalization in ad spends and cost saving initiatives are likely to help...

New product launches in the premium segments as well as increased focus on direct channel distributions and improving cost synergies should help maintain growth. We reiterate our BUY rating on the stock with a revised target price of Rs. 413 based on 43x FY22E adj. EPS. Pandemic hits volumes impacting topline Q1FY21 revenue declined 11.1% YoY to Rs. 1,925cr due to severe impact in domestic business in April, even as volume recovery can be seen from May onwards (upwards of 3.0% YoY). Revenue from India operations stood at Rs. 1,480cr (-14.5% YoY)....

Hair oils contribute 62% of domestic sales. The category is saturated and major brands are only growing by gaining market share from unorganised sector. Though Marico aims to further gain market share in coconut oil by passing on benefit of lower copra prices, growth prospects remain limited as the organised market has already reached above 65%. VAHO performance has remain muted in the last four quarter (Q4 & Q1 have been impacted by lockdown). With expected down trading, Marico is expected to gain market share in the economy category with Nihar Shanti Amla brand....

is likely to continue the momentum as medium-term macro The company remains cautious on the business outlook, but would be aggressive on cost management to enable it to tide over challenging MRCO is cautious on the near-term outlook for the business, but expects to protect the core franchise of Ethnic Hair Care and Healthcare future business prospects as it incubates new geographies to expand the The company would be comfortable maintaining the operating margin at 19% plus over the medium term. Growth in Saffola (edible oil brand) has tapered off in recent years, partly as a result of strategic mistakes in terms of pricing and partly due to the company being unable to cater to the recently emerged Super Premium market segment. both topline growth and margin is optimistic v/s prior fears of EPS decline in While the jury is still out on success achieved in terms of new product trajectory as well as valuation multiples, the stock at 36.8x FY22 EPS appears to still provide healthy upside over the next year, with superior outlook than most peers and a far less volatile international business.

MRCO seems cautiously optimistic on medium term prospects led by market share gain across portfolio and strong growth in Foods and Bangladesh. Although some of the trends like double digit volume growth in edible oils and Oats and significant pressure on VAHO looks temporary, some near term gains from unorganized players looks likely as MRCO looks to cut Parachute prices given moderately benign Copra price outlook. MRCO is betting big on Foods and Hygiene, however aspiration of Rs5bn sales looks stretched target. We expect margin expansion to moderate in coming quarters as ad...