ICICI Direct's research report on Marico
Marico reported an 11% decline in revenue with domestic business de-growing 15%. Manufacturing & supply chain operations only started in end-April for Parachute & value added hair oil (VAHO) resulting in substantial loss of sales for the month. Domestic volumes fell 14% with Parachute, VAHO down 11%, 30%, respectively. Saffola edible oil grew by 16% benefited by increase in-home consumption. The foods business, which contributes ~3% of revenues, saw 30% growth with Saffola Masala oats sales growing 41%. On the other hand, personal care category (hair serum, male grooming & Premium Skin care) was significantly impacted by discretionary nature of category. Within international business, except Bangladesh that saw 10% growth, all other major regions saw double digit sales decline. Operating margins expanded 300 bps largely due to the similar cut in A&P spends. PAT (before exceptional income) grew 2.8% to Rs 324 crore.
Though growth prospects in Saffola edible oil & foods remain strong, it contributes only 20% to sales. A large part of portfolio (hair oils) remains a saturated category with limited growth opportunity. Also, edible oil remains a low margin category with extensive competition. The stock is trading at 37x FY22E earnings. We maintain HOLD with a revised TP of Rs 380.
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