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Epic Research
Marico (Buy)
CMP: ₹386.45
Target: ₹441
Marico is a consumer products company operating in the beauty and wellness space. The company’ s geographic segments include India and international, which includes primarily the West Asia, The South Asian Association for Regional Cooperation (SAARC) countries, Egypt, Myanmar, Malaysia, South Africa and Vietnam. It offers various brands in the categories of hair care, skin care, health foods, male grooming and fabric care.
Q1 performance: Revenue from operations grew by 7 per cent y-o-y to ₹2,166 crore, with an underlying domestic volume growth of 6 per cent and constant currency growth of 7 per cent in the international segment. The international business posted constant currency growth of 9 per cent.
Marico’s India Business recorded a turnover of ₹1,731 crore, a growth of 6 per cent over the same period last year.
Easing raw material costs in the domestic and key overseas markets led to gross margin expansion by 524 bps on a year-on-year basis.
Advertising & sales promotion spends, at 10.1 per cent of sales in Q1FY20, was up 32 per cent y-o-y. The EBITDA margin in Q1FY20 was at 21.3 per cent, expanded by 324 bps y-o-y.
During the current year, the company continues to generate steady cash. The net surplus of the Group as at June 30, 2019, was about ₹1,123 crore (gross debt of ₹333 crore and gross investments of ₹1,457 crore).
Valuation: The recent reduction in raw material cost (Copra), which accounts for >40 per cent of RM cost, high rural penetration and the constant volume growth 8-10 per cent provide bottom-line visibility for the company. We recommend buying Marico at current levels for a target price of ₹441 valuing the stock at 43x of FY20 and 39x of FY22 earnings which are within the five year PE band of the stock.
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