Hold Marico, target price Rs 278: Edelweiss

Edelweiss has given a hold rating to Marico with a target price of Rs 278 (12-months forward EPS). The stock is trading at 31.2 times FY22E EPS. .

Marico is the first consumer goods company to release a fourth quarter FY20 quarterly update amidst the disruption triggered by Coronavirus. Food business in the sector has clocked a good quarter led by up stocking by consumers due to the Covid-19 outbreak.Personal care & grooming businesses -- being discretionary in nature -- faced a tough quarter. With the COVID-19 pandemic, international businesses are also battling lockdown-related challenges in various countries.

Marico’s Saffola clocked high growth due to sustained recovery in the brand & up stocking due to the lockdown. Early signs of improvement in Parachute & value added hair oil were offset by lockdown-led disruption. The brokerage believes the outbreak has pushed back Marico’s recovery timeline and continues to prefer Dabur over it.


The FMCG company’s share price moved down by -2.56 per cent from its previous close of Rs 296.60. The last traded price is Rs 289. Incorporated in 1988, Marico has a market cap of Rs 38336.78 crore.

Investment Rationale

For Q4FY20, Marico’s India business posted low single-digit volume decline with a skewed high growth in the Saffola portfolio. Although volumes of most FMCG companies will take a knock, a combination of lower discounting and cut in ad spends aided Marico’s EBITDA margin a tad. The fourth quarter saw a modest dip in EBITDA year-on-year.

Secondary sales growth in India is likely to be better than primary sales as primary movement of goods was relatively more impacted during the lockdown period.

Considering the subdued macroeconomic environment, the growth recovery is expected to be gradual and
given the tailwind of copra price is in the base, the brokerage does not expect material gross margin expansion in the near future and hence has given a hold rating.

Financials

For the quarter ended December 31, 2019, the company reported a Consolidated sales of Rs 1824.00 crore, down -0.27 per cent from last quarter sales of Rs 1829.00 crore and down -1.99 per cent from last year's same quarter sales of Rs 1860.97 crore. The company reported net profit after tax of Rs 276.00 crore in the latest quarter.