Parachute, Saffola make Marico a money making magnet: Experts tell why
CLSA states that Marico as a stock will show a 15%+ in Ebitda as well as net earnings.
One of the most prominent FMCG companies that dominate the oil products that decorate the household shelves is Marico. It has made a mark for itself, especially through its oil products such as Parachute and Saffola. Now this FMCG company has the potential to grow due to its consistency in updating and upgrading its products. CLSA states that Marico as a stock will show a 15%+ in Ebitda as well as net earnings. Moreover, Marico remains a top pick due to their strong launch pipeline and margin visibility. This is pretty evident when compared to its peer companies.
CLSA also states that they are positive on the stock as there is higher confidence on margin expansion in FY20 at a time when this is uncertain for most of its peers. They maintain a BUY rating with Rs 465 target price. Here are the reasons, as stated by CLSA researchers, why Marico shares will be good to buy:
Stable demand conditions in India
Demand conditions were stable, and rural was ahead of urban. Trends need to be monitored, however, due to sluggishness in wholesale in March. Modern trade and e-commerce were strong, and the worst in CSD seems to be behind. India volume growth was in-line with the near-term outlook – we believe this implies 4QFY19 volume growth of 8-10% based on earlier guidance. Parachute Rigids performed in-line with expectations while VAHO stayed weak; Saffola responded well to marketing initiatives though more work may be required - a low base also helps 4Q.
Reasonable international and overall margin expansion
International business also had a reasonable quarter, with Bangladesh and Vietnam faring well while other markets were a bit subdued. Copra (key input) prices continue to correct, which should drive gross margins. We expect Marico to plough back a part of the savings in the form of higher A&P spends. Despite this, operating margins should still go up, benefiting also from operating leverage. We forecast a 15%+ growth in Ebitda as well as net earnings during 4QFY19.
Focus on launches
A decisive change has been in Marico’s new launch strategy as aggression is visible and 4QFY19 was quite a busy quarter. The company recently launched Kaya Youth O2 range which includes face cream, face wash, mi-cellar water and face wipes. Saffola Fittify Gourmet too saw portfolio expansion with the launch of ready-to-cook Indian breakfast range of Poha and Upma. Coco Soul brand also saw the launch of Coconut Sugar, Coconut Chips, Coconut Peanut Butter and Coconut Almond Butter. Charcoal range was introduced under Set Wet Studio X.
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