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About the stock: Marico is one of the major FMCG companies present in hair oil, edible oil, foods & personal care segment. Major brands include Parachute, Saffola, Nihar, Hair & Care, Set Wet, Livon & Beardo.

  * Marico has an overall distribution network of more than 5.6 million outlets and direct reach of ~1 million outlets. Through its stockist network, it reaches 59000 villages

 * With high gross margins of 45-50%, the company is able to spend 8-9% of its sales on advertisements to support new categories & products

Q4FY23 Results: Marico posted 3.7% sales growth; domestic volumes up 5%.

* Sales growth was led by 9.8% growth in the international business • EBITDA was at | 393 crore, up 13.6% YoY, margins at 17.5% (up 153 bps)

* Consequently, PAT was at | 304.9 crore, growth of 18.7%

What should investors do? Marico’s share price has given 60% return in the last five years (from | 301 in May 2018 to | 494 in May 2023).

* Foods, personal care (PC) & digital brands category contributes 15% to the growth. Further, international business (25% of the business) is growing at faster double-digit growth

* We upgrade Marico from HOLD to BUY

Target Price & Valuation: We value stock at | 570 ascribing 45x PE on FY25 EPS.

Key triggers for future price performance:

* Foods business portfolio has grown from | 170 crore to | 600 crore in the last three years. It is likely to grow to | 850 crore by FY24. Marico is also investing in digital brands. Aims to achieve sales ARR of | 400 crore by FY24

* Though market share gains in hair oils have slowed down in the last few years, stable pricing brought back volume growth in Parachute coconut oil. VAHO is likely to grow well with rural demand recovery

* With a significant decline in vegetable oil prices, Saffola volumes are likely to grow volumes in mid-single digit in the longer run. Next two quarters are likely to see sharp price decline impact on overall sales

Alternate Stock Idea: We also like Dabur in our FMCG coverage.

* Significant shift in consumption towards healthier, natural & Ayurveda based products & aggressively foray in many big categories would be driving growth for Dabur

* Value the business at 52x FY25 earnings. BUY with a TP of | 675

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