Hold Marico; target of Rs 318: Prabhudas Lilladher

Prabhudas Lilladher's research report on Marico

MRCO 4Q results displayed the impact of COVID lockdown and pantry stocking in Saffola even as VAHO and Parachute suffered. MRCO has extended several incentives to trade and expects strong growth in Saffola and gradual stabilization in Parachute and VAHO. Input costs and benign and provide a lever to MRCO to reduce prices and gain share from unorganized players. However, we believe that current momentum in Saffola is led by sustained pantry stocking by consumers and is unsustainable. We believe non-essential products like Parachute, VAHO and personal care will recover after a while and impact of lockdown will be visible in IBD for 1HFY21.

Outlook

We estimate 7.2% PAT CAGR over FY20-22 and 11.3% PAT growth in FY22. MRCO is currently trading at 31.1xFY22 EPS which reflects uncertainty over growth and limited new product success over the years. We value the stock at 35xFY22 EPS and arrive at target price of Rs318 (Rs329 based on 36xFY22 EPS earlier). Retain Hold.