Analyst Corner: Maintain ‘buy’ on Marico with target price of Rs 470

There was a faster-than-expected recovery in consumer sentiment aided by the festive season and lower Covid-19 cases. Rural India continued to perform better than urban. Channel performance, General trade and e-commerce continued to drive growth. Modern trade fared better in 3Q compared to 1HFY21. CSD continued to decline YoY, but improved sequentially.

Led by an improving consumer sentiment, its India business registered double-digit volume growth in 3Q, with revenue growth following suit. Parachute delivered growth ahead of medium-term aspirations. Saffola edible oils continued its growth trajectory with double-digit volume growth. Value Added Hair Oils (VAHO) delivered double-digit volume growth, backed by a sharp broad based recovery across sub-segments. The Foods business registered exponential growth in line with its near- term aspirations on strong performance in base foods and new product launches. Discretionary portfolios saw a steady revival. The Premium Personal Care portfolio witnessing improving trends sequentially, with a modest decline YoY. The international business has clocked high-single digit constant currency (CC) growth. Bangladesh registered double-digit CC growth, while other markets have also recovered.

During 3QFY21, MRCO faced inflationary pressures in key raw materials. It decided to cut back on some promotions and took effective price increases across Parachute and its Saffola edible oil portfolio to counteract these inflationary trends. The management expects to deliver healthy profit growth on the back of various cost optimization initiatives and judicious A&P spends. Valuations at 36.2x FY23E EPS appear comfortable for a business with better earnings visibility over peers. We maintain our Buy rating with a TP of INR470/share (43x Dec’22E EPS).