Recommendation: Buy (again!! J)
CMP = Rs 50 (at the time of this recommendation)
Price target: Rs 77
Key points:
- Marico's net sales increased by 22.5% to Rs 1,906.7 crore in FY2008 from Rs 1,556.9 crore in the same period last year. The sales growth was mainly achieved because of a strong volume growth of 13%, a price hike of 5% and an inorganic growth of 4.5% during the year.
- Marico's focus portfolio delivered a strong performance in FY2008. Its flagship brand Parachute, premium edible oil brand Saffola and hair oil basket achieved a healthy volume growth of 11%, 22% and 16% respectively during the fiscal. During FY2008, despite a rise in the number of creditor days to 57.6 from 54.8 in FY2007, the working capital cycle increased from 27.5 days to 33.5 days on account of an increase in both the inventory and the loans & advances.
- Marico’s ROCE increased by almost 7% in FY2007 – it was possible on account of the restructuring of the balance sheet undertaken by the company in FY2007 (including an adjustment of the intangible assets against the special reserves to the extent of Rs 309 crore). It is now aiming at rationalising its portfolio to focus on its beauty and wellness business. It divested its processed food business operated under the brand Sil to Scandic Food India Pvt Ltd, the Indian subsidiary of Good Food A/S, for a profit of Rs 10.6 crore in FY2008.
- The growing urbanisation of the Indian population and the increasing acceptance of specialised products and services provide a good opportunity for Marico to strengthen its roots in the country's lowly-penetrated beauty and wellness segment. To become a major player in this segment the company is continuously looking to expand its focus portfolio in both organic and inorganic ways.
- At the current market price of Rs 50, the stock trades at 16.2x and 12.7x its FY2009E and FY2010E EPS of Rs 3.1 and Rs 3.9 respectively.
- I maintain Buy recommendation on Marico with a price target of Rs 77 over next 6 months.
