Neutral on Marico - Motilal Oswal

Marico (MRCO IN, Mkt Cap US$1.7b, CMP Rs128, Neutral)

3QFY11 results are above estimates with Cons PAT up 12% YoY at Rs695m Net sales grew 22.1% to Rs8.2b led by healthy volume growth of 15%. Price increases in Parachute and Saffola enabled realization growth of 7%.

EBITDA margin contraction was lower at 260bp due to cost containment in ad-spend (down 180bp), other expenditure (down 80bp) and staff cost (down 30bp).

Subsidiaries (International business and Kaya) have been the saving grace with 26% sales growth and 540bp margin expansion, resulting in PAT growth of 95%.

We remain positive on the volume growth traction in Saffola and success of new launches in value added oils. However, we are cautious on the volume growth trend in Parachute given the 24% price increase.

We are upgrading our estimates by 9% for FY11, 4% for FY12 and 1% for FY13. Our EPS estimates stand revised to Rs5.3 for FY12 and Rs6.5 for FY13, implying FY11-13 EPS CAGR of 19.4 The stock trades at 23.7x FY12E and 19.3x FY13E. Neutral.

Source : Equity Bulls

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