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Saffola growth momentum continues…

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 and Beardo.

* The company has an overall distribution network of more than 5 million outlets and direct reach of ~1 million outlets. Through its stockist network, it reaches 58000 villages

* With the high gross margins of ~47%, Marico is able to spend 10% of its sales for advertisements to support new categories & products.

Q1FY22 Results: Marico reported robust revenue growth in Q1FY22 results.

* Sales were up 31.2% YoY with strong volume recovery and price hikes

* EBITDA was at | 481 crore, up 3.1% YoY, with margins at 19%

* Consequent PAT was at | 365 crore (down 5.3% YoY)

What should investors do?

Marico’s share price has given 84% return in the last five years (from | 297 in July 2016 to | 547 in July 2021).

* We roll over FY24 numbers with expectations of a full recovery in all segments and stabilisation of commodity prices

* We continue to maintain our BUY rating on the stock

Target Price and Valuation: We value the stock at | 630 on ascribing 50x FY24 earnings multiple

Key triggers for future price performance:

* Robust growth in foods & edible oil portfolio led by tailwinds of healthy eating habits & home cooking. Foods portfolio to clock | 500 crore in FY22

* Market share gains in parachute given smaller, regional brands find it difficult to pass on sharp commodity price increase

* Likely margin improvement given commodity prices are expected to cooloff in H2FY22

* Investment in digital only brands. Aims to achieve | 450 crore sales by FY24

Alternate Stock Idea: Besides Marico, we like HUL in our FMCG coverage.

* With synergistic benefits of acquired nutrition business, strong premiumisation trend & strong distribution, HUL would continue to grow the revenues at a sustainable pace

* Value the business at 55x FY24 earnings. BUY with a TP of | 2,750.

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