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Motilal Oswal
Marico Industries (Buy)
CMP: ₹363.2
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.
We were already building in a gross margin improvement in 4QFY19 and FY20. Thus, there is no change to our EPS forecast for FY19, FY20 and FY21. Three factors underpin our confidence on Marico’s earnings prospects: i) Likely benign raw material price environment over the next 18 months; ii) Strong Parachute volumes in recent quarters and healthy growth prospects in the VAHO segment; iii) 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 becoming an interesting play on rural growth.
Targeting 43x March 2021E EPS (in-line with its three-year average), we derive a target price of ₹460, implying a 26 per cent upside to the CMP. From a medium-term perspective, particularly if the targeted 7-8 per cent of sales come from new products, Marico is one of the few companies with potential to deliver 50-60 per cent returns over the next 2-3 years. Maintain ‘Buy’.
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