Q4 FY18 Result Update: Marico Ltd - ACCUMULATE - TP Rs.334 - Kotak

Marico's 4QFY18 financials missed estimates - the company's domestic sales came in weaker than expectations, as Parachute and Saffola volumes disappointed. The management believes that the weakness in Parachute is an aberration that should correct quickly, and the company continues to look for ways to counter weakness in Saffola (expected to come back on track towards the end of 1HFY19). While near-term earnings shall continue to face pressure on weaker margins (higher copra prices), we believe that Marico's longer-term prospects remain strong, as the company continues to maintain / gain market share in most of its categories. We maintain ACCUMULATE with a revised price target of Rs 334 (Rs 327 earlier).

Key Highlights

- Marico reported 12.6% y/y rise in net sales. The company reported Indian/ international operations value growth at 12%/13% y/y in 4Q. Volume growth in India came in at 1%, and value growth in Indian operations was largely led by price hikes taken in coconut oil.

- Within Indian operations, the company reported healthy volume growth (+11% y/y) in the Value Added Hair Oils (VAHO) segment, while coconut oil (CNO) volume growth (-5%, y/y) and Saffola volume growth (-1%, y/y) was weak. Management said that the weakness in CNO was on account of a high base as well as temporary volatility in copra oil prices.

- Reported PAT came in 8% below estimates.

Valuation & outlook

- We estimate 20%/13% y/y growth for Marico, with EBITDA margin of 17.6%/19.2% in FY19/FY20. We expect the company to register 13%/25% y/y growth in FY19/FY20 EPS. Our fresh EPS estimate are 9%/5% lower than prior estimates

- At 35.5x PER FY20E, Marico is not cheap and the stock may provide better entry opportunities if earnings remain subdued in 1QFY19; however, the stock is priced 20% cheaper relative to HUL. We believe there is a case for a greater convergence between topline MNC FMCG companies, and Marico over the medium-term, given the strong track record of the company. We maintain ACCUMULATE with a revised price target of Rs 334 (Rs 327 earlier).

- Key risks to our investment view / estimates include competitive risks, risks from higher raw material prices.

Shares of MARICO LTD. was last trading in BSE at Rs.317.8 as compared to the previous close of Rs. 312.15. The total number of shares traded during the day was 398547 in over 2293 trades.

The stock hit an intraday high of Rs. 328.4 and intraday low of 311. The net turnover during the day was Rs. 128507672.

Source : Equity Bulls

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