Hold Marico; target Rs 141: PINC Research

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Hold Marico; target Rs 141: PINC Research

PINC Research has maintained hold rating on Marico with a target price of Rs 141 in its November 4, 2011 research report.

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PINC Research has maintained hold rating on Marico with a target price of Rs 141 in its November 4, 2011 research report.

"Marico reported net sales growth of 25% YoY to Rs 9.7bn which was in line with our expectation. Overall volume growth was 14% wherein Hair oil franchise and Saffola displayed 26% and 11% volume growth respectively. Copra price correction has led to 200bps sequential improvement in gross margin however on YoY basis it has declined by 488bps. SG&A spending (% of net sales) was still at low level of 9.7% as compared to 12.2% in Q2FY11 and 9.8% in Q1FY12. EBITDA margin was flat sequentially and stood at 12% as staff cost and other expenses (% of net sales) expanded by 70bps and 137bps QoQ. Higher taxes has resulted 18% YoY EBITDA growth into 9% YoY growth in net profits to Rs 783mn (PINCe Rs 737mn). We retain our view on the business that sales growth will be slower in H2FY12 and FY13 and gross level improvement would be set off by higher A&P spending for new products & additional overhead cost in the overseas business."

"Marico clocked robust 29% sales growth in H1FY12 which we expect would not be sustainable in H2FY12. Parachute price hike benefit would be nullified due to the base effect and volume growth will become key driver of sales growth. Volume growth has already been come down to 14% in Q2FY12 as compared to 21% in Q1FY12. Therefore, we expect slower sales growth in H2FY12. Marico guided for higher A&P spending in the medium term on account of new product launches and requirement of higher marketing efforts in the overseas markets. It would force Marico to escalate A&P (% of sales) spending to 10-11% from 9.7% in Q2FY12. During Q2FY12, Kaya displayed mere 7% sales growth and reported loss of Rs 75mn. The performance is not encouraging and we still have limited visibility in this business."

"On account of limited product portfolio, higher exposure to commodity prices and moderate scope for further price hike on key brands, we maintain Marico's P/E discount over FMCG sector. We retain our 24x multiple on 12-month forward earning and increase target price to Rs 141 (Rs 139 earlier). We reiterate our 'HOLD' ratingm," says PINC Research report.

Public holding more than 90% in Indian cos

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To read the full report click on the attachment