Marico Kaya surges over 37% in two sessions; Motilal Oswal initiates 'Buy'

MUMBAI:Shares of Marico Kaya clocked two digit gains for second straight session after brokerage Motilal Oswal initiated coverage on the company with ‘Buy’ recommendation.

According to the brokerage, the company is creating multiple moats around its skin care business. Cost efficiencies & operating leverage are resulting in significant margin expansion for the company.

“The business has high operating leverage which provides continued scope for margin expansion. Almost 70 per cent of the company's expenses are fixed in nature (salaries, rent, overheads) meaning incremental capacity utilization adds more than proportionately to the EBITDA,” the report said.

“The overall capacity utilization currently stands at 35 per cent, while a few of the high performing clinics have a utilization of 55%. Kaya is targeting SSSG of 10-12%, revenue CAGR of 20% and EBITDA margins of 12% by FY17E,” it added.

Motilal Oswal values the company at Rs 1,250 at a P/E of 32x FY17E in line with the consumer basket.

At 09:50 a.m.; the stock was at Rs 1,302, up 11.74 per cent, on the BSE. It surged 14.48 per cent touched a high of Rs 1334 in trade today. The stock has rallied 37.10 per cent in the last two sessions.