04-06-2021 11:14 AM | Source: Motilal Oswal Financial Services Ltd
Buy Marico Ltd : 4QFY21 update - Strong performance across the portfolio; higher input cost a concern By Motilal Oswal
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4QFY21 update: Strong performance across the portfolio; higher input cost a concern

Highlights from Marico’s (MRCO) pre-quarterly update for 4QFY21.

Macro view

* The sector witnessed improved demand trends on the back of positive economic growth as well as rollout of vaccines for COVID-19 across India. However, a cautious approach is advocated as the number of COVID-19 cases continue to rise.

* Channel performance:

* General trade continued to drive growth led by rural demand.

* e-commerce fared well and continued to gain salience.

* Modern trade was affected due to a higher base on account of the pre-lockdown pantry loading in Mar’20, but continues to recover.

* CSD rebounded to post healthy growth.

 

Domestic business

* Led by an improving demand environment and aided by a lower base, MRCO’s India business registered a strong double-digit volume growth in 4QFY21, with higher revenue growth due to price increases taken during the quarter.

* Parachute delivered stellar volume growth.

* Saffola edible oil grew in double-digits for the sixth quarter in a row despite a very high base.

* Value Added Hair Oils (VAHO) continued its recovery trajectory with higher double-digit volume growth.

* The Foods business more than doubled in size with a strong performance in the Oats franchise and aggressive innovations throughout FY21.

* The Premium Personal Care portfolio continued to trend positively though the overall portfolio was still muted.

 

International business

* The international business posted strong double-digit constant currency (CC) growth.

* A recovery was seen across markets

 

Costs and margin

* The input cost environment turned challenging during 4QFY21.

* The management expects these trends to be transient in nature and to correct from 2QFY22E.

* It expects to deliver lower double-digit profit growth in 4QFY21 as operating margin is likely to dip significantly owing to higher input costs.

 

Outlook

* The management maintains its aspiration of delivering sustainable and profitable volume-led growth over the medium term on the back of strengthening brand equity of its core franchises and progressively driving and scaling up new engines of growth.

 

Valuation and view

MRCO has delivered an impressive double-digit volume growth in the domestic business. Growth in Parachute and continued rebound in VAHO are encouraging. The Foods and Edible Oils portfolio is likely to continue its growth momentum and focused launches driven by higher consumer focus on health and hygiene. The success of these new products will be critical for medium-term growth (though it has seen limited success so far). Outlook on its international business is also getting better. While material costs have seen sharp inflation, the company is well placed to offset the same through price increases and cost optimization. Valuations at 35.2x FY23E EPS appear comfortable for a business that has better earnings visibility over peers. We maintain our Buy rating and TP of INR490/share.

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