Buy Marico - TP Rs.191 - Emkay

Buy, Target Price Rs 191 Action has started

Showcased brand efficacy: Despite steep price hikes in product portfolio ((32% in Parachute and 12% in Saffola), volume growth momentum sustains, clocking 12% growth in FY12. Impressive volume growth of 9% in Parachute and 17% in Saffola. Hair Oils portfolio grew 20% in FY12. Growth more likely to sustain in FY13E and FY14E.

Believe, action has started in margins: Marico has considerable 'Delta' effect from any softening of edible oil and copra prices (short term). Reported 650 bps expansion in gross margins in Q4FY12; believe that action has just started. We have forecasted 400 bps gross margin expansion in FY12-14E period. Copra price fall has been steep; scope for positive surprise.

Retains market share in tough business environment: So far, Marico's core brand portfolio has demonstrated resilience in the market place. This is despite steep price hike initiated on core brands of 'Parachute' and 'Saffola'. Also, strategy of absolute Ebidta performance has been retained in difficult environment.

Eyeing bigger canvas in 'Health N Beauty': Marico is eyeing bigger canvas i.e. 'Health N Beauty', whereby the horizons are expanded to skin care products (Body Lotions) and services (Kaya) and health foods (Oats, Atta). Marico is leveraging core brand 'Parachute' and 'Saffola'. Drawing its strategy along same lines in international operations (23% of revenues).

Near term catalysts and earnings performance: Gross margin expansion in Q4FY12 is likely to extend into ensuing quarters, considering steep fall in Copra prices. Hence, expect strong earnings growth in near term. Forecast earnings CAGR of 27% in FY12-14E period (also, being front loaded). Earnings forecasts of Rs7.1/Share and Rs8.3/Share for FY13E and FY14E.

Source : Equity Bulls

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