ICICI Direct is bullish on Marico has recommended buy rating on the stock with a target price of Rs 362 in its research report dated May 04, 2018.
ICICI Direct's research report on Marico
Consolidated sales for the quarter grew 11.9% YoY to Rs 1480.1 crore (below our estimate of Rs 1654.8 crore) led by a sharp price increase in parachute portfolio (up ~30%). The India business reported growth of 12% YoY while the international business grew 13% YoY. Parachute, Saffola witnessed volume de-growth of 5% and 1% YoY, respectively but VAHO portfolio clocked 11% YoY volume growth With more than 50% increase in copra prices, gross margins declined 580 bps. However, 170 bps saving in overhead spend to sales, 50 bps savings in advertisement spend to sales and 40 bps lower employee expenditure to sales partly neutralised the impact of a sharp decline in gross margins. Operating margins were down 260 bps to 17.0% Net profit for the quarter grew 7.2% YoY to Rs 183.2 crore against our estimate of Rs 212 crore. Though copra prices have cooled off ~10% from the peak in January 2018, we believe its impact on price cuts would only reflect in the next two quarters. However, we remain positive on the growth prospects of the company’s core hair oil/edible oil business.
We are positive on the growth prospects with visible signs of demand shift from the unorganised to the organised market. We expect Marico to report healthy revenue and PAT CAGR of 16% and 18.2%, respectively, in FY18-20E. We recommend BUY with a target price of Rs 362/share.
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