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Research
Accumulate Marico - Kaya demerger to create a focused FMCG player - Prabhudas Lilladher
Posted On : 2013-04-26 21:01:06( TIMEZONE : IST )
Marico is demerging Kaya business by share swap (1:50), estimating capital employed at Rs3.5bn. We estimate Kaya at Rs8/share of MRCO assuming 1.5xFY15 EV/sales. Kaya demerger, although positive, is not a game-changer as Kaya was only 7% of sales and had a negative working capital.
Price cuts in Parachute and Saffola to impact from Q1FY14: MRCO has cut prices of Parachute up to 2% and selective Saffola variants by 5% as volume growth has slowed down to 4% for Saffola and 6% for Parachute. We expect gradual recovery in volume growth from Q1FY14 only. We factor in 8% volume growth in Parachute and 12% in Saffola for FY14.
Aggressive pricing in value-added oils to continue: MRCO has gained 6% market share in the past two years due to aggressive pricing in 'Shanti Amla'. Value-added oils led by Amla have seen 25% volume growth in 9MFY13. MRCO has launched tender coconut oil which aims to compete with Almond oil. We expect aggressive pricing to sustain as the focus remains on gaining volumes and market share in value-added oils.
Personal care portfolio to sustain 25% sales growth: Personal care portfolio acquired from Paras is expected to grow by 23% CAGR on the back of strong growth in Deo's and Hair Gels. MRCO is already gaining from synergies in the portfolio of ICP and Paras which will enable the company to launch new products in male grooming and youth segment.
IBD growth volatile; slow recovery likely: IBD growth has been impacted in Bangladesh (40% of sales, inflation and economic issues) and Egypt (product-related issues). ICP, Vietnam and Code 10 remain key growth drivers, with 23% sales CAGR and strong visibility. Expect low teens sales growth with tepid margin recovery in the near term.
Estimate 23.5% PAT CAGR over FY13-15, 'Accumulate': We expect 23.5% PAT CAGR backed by 180bps margin expansion over FY13-15. However, stock trading at 21.7xFY15 (excluding Rs8/share for Kaya) offers limited upside, given 21% ROE and 29% ROCE. 'Accumulate'.
