Broker's call: Marico (Buy)

| Updated on January 07, 2019 Published on January 07, 2019

Motilal Oswal

Marico (Buy)

CMP: ₹386.55

Target: ₹465

Three factors underpin our confidence on Marico’s earning prospects: a) likely benign raw material environment over the next 18-24 months (copra accounts for 40-50 per cent of material costs); b) strong performance of Parachute volumes in recent quarters and healthy growth prospects in the VAHO segment; and c) good traction being witnessed on new product development.

Crucially, at a time when both sector multiples as well as ability of peers to pass on emerging material cost pressures are under question, Marico provides far higher visibility compared to peers. Moreover, with over 30 per cent of sales coming from rural (management is targeting 40 per cent), and particularly with its technological edge over peers, Marico is emerging as an interesting play on rural growth.

Targeting 46x December 2020 EPS (about 10 per cent premium to three-year average) we get a target price of ₹465, 23 per cent upside to the CMP.

From a medium-term perspective, particularly if new products yield 7-8 per cent of sales, we believe Marico is one of the few companies that can give 60-70 per cent returns over the next 2-3 years.

Published on January 07, 2019
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