Accumulate Marico; target of Rs 172: Emkay

“Strong volume growth in Marico’s mainstay portfolio coupled with full impact of price hikes drives strong 29.4% yoy revenue growth to Rs 10.6 bn, in line with estimates. Further, favorable base effect (yoy in material costs) and richer revenue mix drives 120 bps expansion in gross margins. However, one-off expenditure and rise in A&P spends resulted in 70 bps yoy decline in Ebidta margins to 11.5%. Consequently, Ebidta of Rs1.2 bn (+22.1% yoy) remains below estimates. A lower tax outgo in the quarter resulted in APAT at Rs841 mn (+21% yoy), being in line with estimates.”

“Though, declined from peak, Copra prices continued to impact gross margins and earnings so far. Further, safflower oil and rice bran also continued to remain firm, up 27% and 45% yoy, respectively. However, Marico is entering a favorable base effect from Q4FY12 onwards. This alongside any softening of input costs which has high probability (referring to our thesis ‘Rural Steroids Ebbing, Underweight Rural Exhilarants’, could yield strong earnings performance. Infact, we have partially factored above triggers and expect strong earnings performance, faster then industry growth.”

“Marico demonstrates strong volume growth on sustained basis, despite significant price increase. Thus, Marico’s earnings can gain from delta effect from any softening in input prices. This is completely in sync with one of three themes in consumer sector; Referring to ‘Rural Steroids Ebbing. Underweight Rural Exhilarants’. We reiterate Marico as our top pick in consumer sector, focus on absolute Ebidta and strong brand efficacy. Forecast for strong earnings performance in ensuing quarters (next 3 quarter) ahead of industry growth is an important catalyst. We retain our ACCUMULATE rating with target price of Rs172/Share,” says Emkay Global Financial Services research report.

Bodies Corporate holding more than 50% in Indian cos

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