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Motilal Oswal
Marico (Buy)
CMP: ₹366.05
Target: ₹460
Marico is a consumer products company operating in the beauty and wellness space. The company’s principal products include edible oils and value added hair oils. The company’s geographic segments include India and international, which includes primarily the West Asia, SAARC countries, Egypt, Myanmar, Malaysia, South Africa and Vietnam.
Valuation and view: Three factors underpin our confidence on Marico’s earnings prospects: i) the likely benign raw material (RM) cost environment over the next 18 months (copra accounts for 40-50 per cent of RM cost); ii) the strong performance of Parachute volumes in recent quarters and healthy growth prospects in the VAHO segment; and c) good traction in new product development. 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 also becoming an interesting play on rural growth.
Targeting 43x March 21E EPS (in line with threeyear average), we derive a target price of ₹460, a 33 per cent upside to the CMP. From a medium-term (2-3 years) perspective — particularly if the targeted 7-8 per cent of sales come from new products, Marico is one of the few companies that can deliver 60-70 per cent returns. Maintain Buy.
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