Reduce Marico; target of Rs 150: PINC Research

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Reduce Marico; target of Rs 150: PINC Research

PINC Research is bearish on Marico and has recommended reduce rating on the stock with a target of Rs 150 in its February 2, 2012 research report.

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PINC Research is bearish on Marico and has recommended reduce rating on the stock with a target of Rs 150 in its February 2, 2012 research report.

"Marico reported better than expected net sales growth of 29% led by 20% volume growth during the quarter. Parachute coconut oil clocked 40% sales growth which includes 13% volume growth. The benefit of price during Q3FY11 was only partially available during that quarter and hence the realisation growth in Q3FY12 is higher than our anticipation. Higher A&P spending impacted the profitability and resulted into 68bps YoY and 45bps QoQ decline in EBITDA margin. PAT grew by 21% to Rs842mn (PINCe Rs801mn)."

"Marico registered 13%, 20% and 15% volume growth for Parachute oil, Value added hair oil and Saffola oil respectively. Parachute oil in the last three quarters registered encouraging 10%, 10% and 13% volume growth and beat the competition through introduction of new packs. Marico gained 150bps YoY market share on coconut oil to 54%. Value added hair oil and Saffola maintained high volume growth. IBD (25% of sales) posted 39% growth that includes 16% organic and 24% inorganic growth. Bangladesh (~45% of IBD) posted 11% growth while rest of the organic business clocked ~20% growth. We expect higher marketing efforts to continue to maintain this high growth. Higher A&P (164bps YoY and 300bps QoQ) spend was due to the new product launches and higher marketing efforts for the overseas market. We expect such marketing efforts would be required going forward to. We anticipate EBITDA margin improvement to the tune of ~100bps during FY13-14E due to softening of input prices."

"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 earnings and raise TP to Rs150 (earlier Rs144). We maintain our 'REDUCE' rating on the stock," says PINC Research report.   

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To read the full report click on the attachment