ICICIdirect.com is bullish on Marico and has recommended buy rating on the stock with a target of Rs 308 in its August 4, 2014 research report.
"Marico's results were above estimates reporting sales growth of 25.2% YoY to Rs 1619.2 crore (I-direct estimate: Rs 1541.4 crore) led by overall volume growth of 5% and domestic volume growth of 6.5%. Volume and value growth in Parachute, Saffola and VAHO stood at 6%/41%, 10%/14% and 11%/28%, respectively. Though sales growth was strong, EBITDA margins weakened 62 bps YoY to 16.4% following the significant increase in copra and coconut oil prices (+134% YoY in Apr-June, 2014), which constitute 30-35% of the overall raw material cost for the company."
"Led by Marico's strong brand equity in its two flagship brands, Parachute (associated with nourishment and purity) and Saffola (associated with health and wellness), the company has successfully extended its brands into higher growth and underpenetrated categories of advanced/value added hair oils (Parachute Advansed), body lotions (Parachute body lotion) and breakfast cereals (Saffola Oats, Masala oats and muesli). Further, the company's acquisition of youth brands, Set Wet & Zatak (deodorants) and Livon (hair care) provides it a platform to grow in the segments of future through already established brand equity. Marico has also extended its brand equity of Livon to enter the hair colour segment that is experiencing robust growth in India. Hence, we believe that led by Marico's strong brand strength and entry into higher growth segments, revenue and volume growth would remain strong through FY16E."
"Marico has the ability to drive healthy sales growth at 21% CAGR (FY14- 16E) aided by expansion into rural areas and capturing the revival in urban growth through its strong brands. Further, with increasing contribution of health and wellness products, youth brands and stabilising operations in international business, we expect margins to improve to 16.6% by FY16E, driving profitability growth at 20.9% CAGR FY14-16E. We value the stock at ~10% premium to the historic two-year forward multiple at 28x FY16E EPS of Rs 11 assigning the stock a target price of Rs 308 with a BUY rating," says ICICIdirect.com research report.
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