Hold Marico Ltd For Target Rs.580 - Edelweiss Financial Services
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Results in line; ad spends to go up
Marico’s Q2FY22 revenue, EBITDA and PAT growth of 21.6%, 8.7% and 8.4% YoY, respectively, met our estimates. Domestic volume was up 8% YoY on a soft base of 11% YoY. Saffola foods sustained its healthy run – up 70% YoY – with both core and new franchises pitching in. Parachute volumes grew 7% YoY, with 180bps volume market share gain. International business (IB) posted healthy 13% YoY (cc) growth.
Overall, we like Marico from a long-term standpoint. However, given the company is entering a period of high base, not to mention more aggression from Dabur under its new MD, we would wait before getting constructive on Marico. Maintain ‘HOLD’ with a revised TP of INR580.
Steady growth
What we like: Parachute saw 7% YoY volume growth, and 18% YoY value growth with 180bps YoY volume market share gain. VAHO grew 16% YoY with 40bps YoY volume market share gain. Saffola foods grew 70% YoY led by penetration gains and oats, which grew 36% YoY. International business grew 13% YoY on constant currency basis. Traditional trade stayed firm on a high base.
What we don’t like: EBITDA and gross margin compressed 207bps and 556bps YoY respectively. Saffola refined edible oils was subdued mainly by trade destocking and partly due to lower in-home consumption.
Other highlights: Male grooming, and Livon serum grew in double digits. Beardo is on way to INR1000mn exit for the year. Soya chunks have gained 20% market share.
Q2FY22 conference call: Key takeaways Despite moderation in growth, rural outpaced urban during the quarter and on a 2- year CAGR basis. The company gained MS in 90% of the portfolio on an MAT basis. Copra price is under control and will be range-bound. Saffola Oodles is scaling up well in GT and MT. The company expects to report double-digit revenue growth with mid-single-digit volume growth in H2FY22. EBITDA margin to rise Q4FY22 onwards.
Outlook and valuation: Robust sales growth; maintain ‘HOLD’ We expect the revenue trajectory to continue to be robust. Competitive intensity (we expect Adani Wilmar to become even more aggressive post listing) in the hair oil category needs to be monitored. Rolling forward the valuation to Mar-23E, we are revising up the TP to INR580 (earlier INR550) while maintaining ‘HOLD/SN’.
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