INSUBCONTINENT EXCLUSIVE:
Phillip Capital (India) has a buy call on Marico with a target price of Rs 425.
The current market price of Marico is Rs 377.95.
Time period
given by brokerage is one year when Marico price can reach defined target
cent of India business): Management expects mid-single-digit volume growth to continue despite premium over loose oil rising (almost 3x) and
loose oil (unorganized) players starting to gradually claw back share owing to improving working capital scenario in wake of falling copra
rural is likely to grow much faster than urban (trend for past few quarters), and (2) market-share gains from unorganized market (30-35 per
Marico is trying to provide maximum value to customers through promotional offers (See Exh 4) and will cut prices once copra prices
expects a similar run-rate based on a shift from heavy hair oil to light, scaling up of new product launches (see Exh
6), and targeting LUPs (low unit packs; Rs 10, Rs 20) to drive growth at bottom of pyramid/rural areas
Management said that CSD channel has stabilised after a short-term blip in 2Q; hence it will not impact volume in coming quarters
36 per cent for Dabur Amla) and consumers shifting from mustard oil to amla hair oil in north and east India
Marico has not yet seen any meaningful impact as a result of Dabur launching flanker brands in amla hair oil space
Management said it has been able to gain substantial market share due to differentiated pricing and its social objective of contributing 5
(with launch of Bajaj Coco Jasmine) has not dented its share
We believe Hair Care (light hair oil) is likely to face challenges (as seen in Bajaj Corp ADHOs) despite a recent launch of a new variant
(walnut + almond) as customers are looking for efficacious products, not just those that meet styling needs.
New product launches: Marico
has created two separate SBUs for premium personal care and foods, as these categories require higher innovation, more risk taking, and have
complex supply-chain systems
a clean slate: Expects double-digit CC revenue growth in medium term, as most macro challenges are over
Re-election of incumbent government in Bangladesh (45 per cent of international business) and resulting stability bodes well for
Marico.
Commodity windfall to aid margins in medium term: Marico does not expect any material impact due to a recent government announcement
of a 20 per cent increase in MSP (minimum support price) of copra (per kg) to Rs 95 from Rs 75 because its own procurement price stands at
Rs 110/kg, which is above current copra MSP
Its copra procurement costs depend more on demand-supply dynamics and it is not legally bound to procure copra at MSP
Copra constitutes 50 per cent of RM costs
However recently, price rebounded from lows due to cyclone in Tamil Nadu and are currently trading at Rs 100/kg (Bloomberg)
