Prabhudas Lilladher recommended hold rating on Marico with a target price of Rs 351 in its research report dated May 06, 2019.
Prabhudas Lilladher's research report on Marico
We cut FY20 and FY21 EPS estimates by 8% and 7.4% on account of 1) rising competition from unorganized players in parachute given soft copra prices 2) reduction in margin guidance due to higher promotions and ~5% price cuts in VAHO and 3) increase in ad-spends behind Saffola and new launches. Marico remains optimistic on achieving its medium term guidance of 8-10% volume growth led by 1) 5-7% volume growth in Parachute 2) growing traction in small packs of VAHO, Hair Serums and male grooming and 3) recovery in CSD channels and high growth rate in MT and E-commerce. Although MRCO has guided for high single digit volume growth in Saffola post achieving 18% volume growth in 4Q19, however we believe that the brand requires significant repositioning and price correction to outgrow market in a highly competitive scenario.
MRCO has shown renewed vigor in new launches and innovations, but we remain cautious given segments and poor track record in scaling up such launches in the past. We expect price cut in Parachute rigid packs in coming quarters in order to prevent a shift towards unorganized players. We estimate 12.1% PAT CAGR over FY19-21 and value the stock at 38xFY21 and arrive at target price of Rs351 Retain Hold.
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