“Marico, the management was also surprised with 10% volume growth in Q1FY12 and justified that the couple of launches at new price point has helped Marico to achieve such strong growth. However,.......
PINC Research has recommended hold rating on Marico with a target of Rs 139, in its September 29, 2011 research report.
“Marico, the management was also surprised with 10% volume growth in Q1FY12 and justified that the couple of launches at new price point has helped Marico to achieve such strong growth. However, management maintained its 6-8% long term volume growth guidance for Parachute oil. We believe as the Q1FY12 volumes were strong, Marico should end this year with ~7.5% volume growth. Large part of 32% cumulative price hike on Parachute oil in FY11 was implemented in H2FY11 that helped Marico to achieve robust sales growth in the past three quarters. We believe further price hike is unlikely and if price remain at the current level then the value growth in H2FY12 would be slower than the H1FY12. We expect ~32% value growth in Parachute achieved during Q1FY12 will reduce to ~28%, ~16% and ~0% in Q2FY12, Q3FY12 and Q4FY12 respectively (refer Exhibit 1). Despite the fact that the Copra prices have declined by 10% during the current quarter compared to Q1FY12, the sustainability of the prices is still not clear. Even Marico management seems cautious for guiding the future price trend. Apart from the demand supply scenario of Copra, the fluctuations in Palm Kernel prices also contributed to the volatility in the Copra prices.”
“On the back of recent decline in Copra prices, we expect average Copra price during H2FY12 should be either similar to or lower than the average price of Q2FY12 (Rs60/kg). However, even if Copra price maintains the current level the gross level profitability on sequential basis would improve. As Marico carries ~45 days inventory of Copra, the recent 10% sequential decline during Q2FY12 will give full benefit in Q3FY12. Marico management seems confident on healthy growth of its other hair oil brands portfolio i.e. Hair & Care, Parachute Jasmine and Shanti Badam Amla. This segment clocked 21% and 32% volume growth during FY11 and Q1FY12. Management seems confident in maintaining ~15% volume growth of Saffola oil. The aggressive marketing efforts have enabled Marico to achieve leadership in the super premium refined edible oil market. Saffola has expanded market share to ~53% compared to ~46% in FY08. Marico’s overseas business fetches lower EBITDA margin of ~11% than the domestic business EBITDA margin of ~14%. The higher overhead spending on recent acquisitions would result into some near term EBITDA margin pressure for Marico.”
“On account of limited product portfolio, higher exposure to commodity prices and moderate scope for further price hike on key brands, we maintain Marico’s P/E discount over FMCG sector. We retain our 24x multiple on 12-month forward earning and maintain TP of Rs 139. We reiterate our ‘HOLD’ rating on the stock,” says PINC Research report.
....
more info“Marico, the management was also surprised with 10% volume growth in Q1FY12 and justified that the couple of launches at new price point has helped Marico to achieve such strong growth. However, management maintained its 6-8% long term volume growth guidance for Parachute oil. We believe as the Q1FY12 volumes were strong, Marico should end this year with ~7.5% volume growth. Large part of 32% cumulative price hike on Parachute oil in FY11 was implemented in H2FY11 that helped Marico to achieve robust sales growth in the past three quarters. We believe further price hike is unlikely and if price remain at the current level then the value growth in H2FY12 would be slower than the H1FY12. We expect ~32% value growth in Parachute achieved during Q1FY12 will reduce to ~28%, ~16% and ~0% in Q2FY12, Q3FY12 and Q4FY12 respectively (refer Exhibit 1). Despite the fact that the Copra prices have declined by 10% during the current quarter compared to Q1FY12, the sustainability of the prices is still not clear. Even Marico management seems cautious for guiding the future price trend. Apart from the demand supply scenario of Copra, the fluctuations in Palm Kernel prices also contributed to the volatility in the Copra prices.”
“On the back of recent decline in Copra prices, we expect average Copra price during H2FY12 should be either similar to or lower than the average price of Q2FY12 (Rs60/kg). However, even if Copra price maintains the current level the gross level profitability on sequential basis would improve. As Marico carries ~45 days inventory of Copra, the recent 10% sequential decline during Q2FY12 will give full benefit in Q3FY12. Marico management seems confident on healthy growth of its other hair oil brands portfolio i.e. Hair & Care, Parachute Jasmine and Shanti Badam Amla. This segment clocked 21% and 32% volume growth during FY11 and Q1FY12. Management seems confident in maintaining ~15% volume growth of Saffola oil. The aggressive marketing efforts have enabled Marico to achieve leadership in the super premium refined edible oil market. Saffola has expanded market share to ~53% compared to ~46% in FY08. Marico’s overseas business fetches lower EBITDA margin of ~11% than the domestic business EBITDA margin of ~14%. The higher overhead spending on recent acquisitions would result into some near term EBITDA margin pressure for Marico.”
“On account of limited product portfolio, higher exposure to commodity prices and moderate scope for further price hike on key brands, we maintain Marico’s P/E discount over FMCG sector. We retain our 24x multiple on 12-month forward earning and maintain TP of Rs 139. We reiterate our ‘HOLD’ rating on the stock,” says PINC Research report.
....