Prabhudas Lilladher's research report on Marico
We cut FY23/FY24 EPS by 4.1%/7.3% and rating from Accumulate to Hold on account of weak volume expectations in Saffola Edible oils and Nutrition based food products. Although volume de-growth at 6% for 1Q23 has bottomed out, however sustained pressure on Saffola and price reduction across Saffola and Parachute will impact sales growth. We believe MRCO is well placed to accelerate growth due to 1) Price cuts in Parachute on 20-25% YoY reduction in Copra prices 2) Launch of new products in mid-sized but high growth categories of Peanut butter and Mayo 3) improved relative price value equation of Saffola in edible oils post recent price correction 4) Success of new launches in foods with objective of Rs8.5-10bn sales by FY24 and 5) Increased focus on digital brands in HPC with aspiration of Rs4.5-5bn topline by FY24 (Rs2-2.5bn in FY23). We believe any adverse movement in copra prices and other crude linked inputs can pose a risk given 8-9% price correction in Parachute coconut oil. We expect Sales/PAT CAGR of 8.9% and 16.2% over FY22-24.
We value the stock at 42xJun24 EPS and assign a target price of Rs523 (544 based on 42xMar24 EPS earlier) given healthy ROE/ROCE of 44.0%/54.0% and 90+% dividend payout. Recommend Hold .
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