Large Cap : Buy Marico Ltd For Target Rs.560 - Geojit Financial
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Resilient growth despite industry pressure
Headquartered in Mumbai, Marico Limited is a leading Indian FMCG company with exports to over 25 countries. The company’s product portfolio includes brands such as Parachute, Saffola, and Livon.
* Q3FY22 revenue registered a healthy growth of 13.4% YoY (-0.5% QoQ) on strong volume and demand growth in both domestic and international markets on YoY basis, whereas QoQ was impacted due to lower FMCG spending as a result of inflation.
* EBITDA margin expanded 40bps QoQ to 17.9% (-160bps YoY) aided by higher sales realizations and better product mix. Resultantly, Adj. PAT inched up 0.3% QoQ (+1.0% YoY).
* Despite high input prices and margin pressures, company is expected to showcase strong performance amidst a good monsoon season, continuous portfolio expansion and a healthy sowing season. Hence, maintaining a positive outlook, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 560 based on 43x FY24E adj. EPS.
Broad based revenue growth
During Q3FY22, revenue grew 13.4% YoY Rs. 2,407cr (-0.5% QoQ) aided by 8-10% YoY underlying volume growth in the domestic business and 18% YoY growth in constant currency terms in the international business. India sales fell 2.8% QoQ to Rs. 1,817cr (+11.7% YoY) owing to higher prices. Meanwhile, International business surged to Rs. 590cr (+7.5% QoQ, +19.2% YoY), aided by scaling up of new launches in Bangladesh (+16% YoY), Southeast Asia largely driven by broad based recovery
EBITDA improves despite margin contraction
With falling edible oil prices and off-season falling copra margins, EBITDA is recovering sequentially rising 4.4% YoY to Rs. 431cr (+1.9% QoQ) benefiting from higher sales realizations with better product mix and higher volumes amidst growing domestic and international demand. EBITDA margin fell 160bps YoY to 17.9% (+40bps QoQ), partially impacted by an increase in the operating leverage. PAT inched up 1.0% YoY to Rs. 310cr (+0.3% QoQ).
Key concall highlights
* On a two-year CAGR basis, Domestic volume and revenue growth was 7.3% and 15% respectively, as expected.
* 95% of the portfolio gained market share and penetration on a MAT basis, while rural consumption fell over the quarter.
* A&P investment increased by 14% YoY, thereby strengthening branding.
* EBITDA margin is expected to be upwards of ~19% over the next year.
* Net realization of all the four digital brands put together is ~ Rs. 150-200cr.
Valuation
Lockdown ease, demand revival and international diversification of portfolio should support company’s topline growth in upcoming quarters. Also, margins are expected to improve aided by drop in prices of one of its major inputs (i.e., copra), leading to improved profitability. With promising growth outlook of 12.8% CAGR for FY21- FY24E, we reiterate our BUY rating on the stock with a rolled forward TP of Rs. 560 based on 43x FY24E Adj. EPS.
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