Published on 7/09/2019 11:14:43 AM | Source: Equirus Securities Ltd

Update On Marico Ltd by Equirus Securities

Broadly in-line quarter, earnings momentum to continue — retain LONG

MRCO’s 1Q consolidated sales grew 7% yoy to Rs 21.66bn, in line with EE. India volumes were up 6% yoy (consolidated volume growth: 6%) as Parachute rigids portfolio saw a 9% volume growth. Consolidated EBIDTA grew 26% yoy to Rs 4.61bn (6% above EE). Consolidated gross margins improved yoy to 47.5%; while EBIDTAM during the qtr stood at 21.3% despite significantly higher A&P spends (+32% yoy). We expect volume growth for MRCO to remain steady in FY20 aided by Parachute rigids, and a gradual recovery in Saffola and VAHO volumes in the ensuing quarters. We broadly maintain FY20/ FY21 profit estimates and expect operating profit growth to be strong during FY20/21. We maintain our LONG rating with a Dec’20 TP of Rs 418 (Jun’20 TP: Rs 396) at 42x TTM EPS of Rs 10.


Parachute rigid volumes strong; Livon continues its growth momentum: Parachute rigid volumes grew 9% (1QFY19: 9%) led by market share gains. Given the current liquidity issues Marico continues to gain share from the local players which is likely to continue in the near term and hence Parachute Rigids pack prices might take some time to correct aiding profit growth. Male grooming portfolio reported flattish growth in 1Q (4QFY19: +3%) as deodorants segment reported weak performance; MRCO will continue to develop this category as a future growth driver. Livon serums grew 28% yoy, with many new products launched under the brand and Rs. 3SKU inducing trials. Copra prices were down 25% yoy and needs to be monitored closely going in to 2HFY20. We build in FY20/FY21 volume growth for Parachute rigids at 7%/6%.


Saffola edible oil volumes tepid, focus continues to increase on foods: Saffola edible oil volumes which had grew 18% in 4Q19 reported 3% volume growth during the qtr as we believe that tertiary offtake hasn’t improved significantly. We expect 6%/7% volume growth for Saffola edible oils in FY20/FY21 and would likely build in mid-single digit volume growth for the brand over long term. Healthy foods portfolio grew 38% yoy driven by Saffola masala oats and various product launches under Saffola Fittify and Coco Soul. MRCO has also recently forayed into ready to cook mixes of traditional Indian breakfast under the brand Saffola Perfect Nashta. The healthy foods franchise remains a focus area and MRCO would continue to invest behind brands in future.


International biz on track, VAHO volumes grew 7%: VAHO volumes were up 7% yoy due to underperformance of premium brands despite 1% volume growth in 4Q19. We believe VAHO will continue to be driven by mass products like Amla and Sarson while new launches and price cuts in certain products could aid growth. International business 1Q sales stood at Rs 4.4bn, up 9% yoy (CC growth: 7%). South East Asia business continued to recover, growing 8% yoy in CC terms. Bangladesh business was up 11% in CC terms led by the non-coconut oil portfolio (+29% yoy in 1Q). MRCO is aggressively focusing on the non-coconut portfolio in Bangladesh and also entering the baby care segment.


Key risks: Lower-than-expected volume growth, higher raw material costs.


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