Last Updated : May 15, 2018 05:54 PM IST | Source:

Buy Marico; target of Rs 376: HDFC Securities

HDFC Securities is bullish on Marico has recommended buy rating on the stock with a target price of Rs 376 in its research report dated May 03, 2018.

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HDFC Securities' research report on Marico

Marico’s revenues grew by 13% YoY to Rs 14.8bn (in-line). EBITDA margin dip was  more  than  expected  due  to higher gross margin pressure. EBITDA/PAT increased by (2)/4% vs. expectation of 4/10% respectively. Domestic  business  (78% of total) posted healthy 12% growth, volume was up by  mere  1%.  Consistent  price  hike  on  Parachute and high base (15% in 4QFY17)  impacted  volumes.  International  business  posted healthy 16% cc growth led by strong 17% cc growth in Bangladesh and 61% in MENA. Copra  inflation  has  been impacting gross margins (down 550/500bps YoY in 4QFY18/FY18)  and  we  believe  the worst is now behind. Softening in Copra prices  would  result  in  GM expansion, since Marico cuts Parachute prices judiciously to restore margins. Historically,  this  trend  has  been  visible  wherein  GM has expanded by ~450bps   between   2QFY16-3QFY17   vs.   a   decline  of  ~450bps  between 2QFY14-3QFY15.  In  the  current  copra inflation cycle, GM has declined by ~450bps  between  4QFY17-4QFY18.  With  a fall in copra prices, we model GM expansion of 300bps (conservative) during 2QFY19-4QFY20E.


We  also  bake in aggressive A&P spends of 20% growth in FY19-20 to support new launches. We anticipate EBITDA margin expansion of ~200bps in FY19-20E.  With  a  recovery  in  margins,  stabilizing  trade  channels and improving international  biz  we  expect  revenue/EBITDA/APAT  CAGR of 15/27/30% over FY18-FY20E.  We value Marico based on P/E of 35x Mar-20, and arrive at a TP of Rs 376. Maintain BUY.

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First Published on May 15, 2018 05:54 pm
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