Edelweiss is bullish on Marico has recommended buy rating on the stock with a target price of Rs 361 in its research report dated May 03, 2018.
Edelweiss' research report on Marico
Marico’s Q4FY18 revenue and PAT growth of 12.6% and 7.2% YoY, respectively, came in line, while 2.8% YoY EBITDA decline belied estimate. India volumes remained soft—up 1% YoY on a base of 10%— owing to tepid volume growth in Parachute (down 5% YoY) and flattish in Saffola. International business has started showing signs of improvement—reported CCY of 16% YoY. Marico’s overall gross margin fell 551bps YoY due to 61% YoY and 6% QoQ spike in copra prices. However, we expect margin pressure to ebb from H2FY19 due to ~22% price hike effected in H2FY18 in Parachute portfolio (refer: Sanguine on improving trajectory). Factoring 100bps/30bps EBITDA margin contraction in FY19/FY20E, we have pruned FY19/FY20E EPS ~6%/3% YoY. Maintain ‘BUY’.
We expect Marico to sustain growth led by price hikes in Parachute, new product launches, market share gains and improvement in IB. Despite a challenging raw material scenario (now largely behind), the company has commendably managed margin. Thus, we retain target multiple of 42x FY20E and arrive at TP of INR361 (earlier INR373). At CMP, the stock is trading at 36.3x FY20E EPS. Maintain ‘BUY/SP’.
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