Reduce Marico; target of Rs 351: HDFC Securities

HDFC Securities' research report on Marico

Marico posted a mixed set of numbers as revenue declined 11% YoY due to weak domestic performance. Domestic revenue/EBIT declined by 15/2% YoY, while International revenue/EBIT grew by 2/18% YoY. The domestic performance was impacted by weak demand in VAHO (-32% YoY) and PCNO (-12% YoY). Saffola continued its strong trajectory with 16% YoY growth. The company has witnessed a sequential recovery in demand in May and June, recording a 3% YoY growth. In international, Bangladesh posted healthy 10% YoY cc growth while the lockdowns in MENA (-27% YoY cc) and South Africa (-25% YoY cc) impacted international revenue (-4% YoY cc). There is a beat at the EBITDA level, led by lower A&P. Benign copra prices and A&P rationalisation will maintain operating margins at a healthy level in FY21. While we expect the discretionary portfolio to remain muted, PCNO and Saffola are expected to drive recovery.

Outlook

We maintain our EPS for FY21/FY22/FY23. We value Marico at 35x P/E on Jun-22E EPS and derive a target price of Rs 351. Maintain REDUCE.

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