Marico Limited - On the recovery path - Antique

Marico has not witnessed any incremental moderation in demand growth during the quarter though Parachute CNO volumes are yet to witness a recovery. Saffola has witnessed an improvement in performance during the quarter to double digit growth rates, while Value added hair oils continued to post healthy growth. International business is expected to recover during 1HFY14 with improvement in performance of Bangladesh and Egypt. Further, MENA region should also start contributing from 2HFY14 to the recovery in international operations. Input cost has been under control during the quarter with no linkage and impact from the INR depreciation. However, the same may benefit the company in its international performance.

Post the recent correction in the stock price, without any change in the fundamentals we believe that the stock is available at a reasonable PE of 21.7x FY15e. We believe that in the current scenario of uncertainty, Marico's proven brand strength in coconut and hair oils and well-entrenched distribution provides confidence. We therefore upgrade the stock to BUY with a target price of INR211.

Parachute coconut oil sales growth expected to be moderate

During 1QFY14, volume growth of Parachute coconut oil, was impacted by the 10-15 day retail strike in Maharashtra, which forms about 25-30% of the brand's sales. Additionally high base of the previous corresponding period would affect Parachute CNO's growth during the quarter. During 1QFY13, Parachute coconut oil rigid pack had grown at 18%. For the full year FY14, Marico management is confident of posting a 7-8% volume growth in Parachute coconut despite a moderate 1QFY14 backed by the strength of the brand and the price cuts.

Saffola back on track, while Value added hair oils continues to sustain healthy growth

Saffola has witnessed a recovery in performance during the quarter recording double-digit growth in sales backed by the price cuts to the tune of about 2-3%. Value added hair oils have continued to post a healthy growth in sales during the quarter and the management expects to record about 15-18% growth in sales during the full year FY14.

Acquired youth brands on track to achieve 20% growth

The acquired youth brands are on track to achieve 20% growth during FY14. According to the management, despite the plethora of brand launches in the deodorant space, there is ample potential for all the players to grow. The deodorant category as a whole has been growing at 20-25% per annum. According to the management, its well-entrenched distribution network would provide it the edge over smaller players in the category.

International operations to witness improvement with further recovery in Bangladesh and Egypt

In international operations, Bangladesh and Egypt are expected to witness further improvement in performance during the quarter. The management expects its Bangladesh and Egypt businesses to grow by about 12-13% and 15% respectively during FY14. However, MENA region is expected to witness recovery only by 2HFY14.

Input cost remains under control

Input cost inflation has been under control during the quarter with a moderate increase in copra prices to the tune of about 6% on year on year basis. The company has not seen any impact from the INR depreciation during the quarter as majority of its inputs are procured domestically and linkage with global prices of substitute commodities comes in to play over slightly longer period of time.

Source : Equity Bulls

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