(BSE Code: 531642) (CMP: Rs.381.50) (FV: Re.1)
Incorporated in 1988, Mumbai based Marico Ltd manufactures and markets consumer products such as coconut oil, hair oils, refined edible oils, anti-lice treatments, fabric care, functional and other processed foods, hair creams and gels, hair serums, shampoos, shower gels, hair relaxers and straighteners, deodorants and other related consumer products and by-products. It markets its products under the following brands: Parachute, Nihar, Saffola, Hair & Care, Revive, Mediker, Livon, Set-wet, Fiancée, Hair Code, Caivil, Hercules, Black Chic, Code 10, Ingwe, X-men, Thuan Phat, etc. Its distribution network comprises regional offices, carrying and forwarding agents, redistribution centers and distributors. The overall demand environment in Q3FY19 was good with market share gains across key portfolios. The positive sentiment during the quarter was led by festive season and expectations of a stimulus from favourable government initiatives. The rural segment continues to do well on the back of good demand. Meanwhile, growth in urban areas was driven by newer channels. During the quarter, Parachute grew healthily while Saffola remained subdued. Its new portfolios i.e. Premium Hair Nourishment, Male Grooming and Healthy Foods grew in line with expectations. It launched a couple of new products during the quarter like ‘Hair & Care Dry Fruit Oil’ and ‘Saffola FITTIFY Gourmet’. Marico’s international business saw decent growth led by portfolio diversification in Bangladesh and enhanced GTM (goto-market) initiatives in Vietnam, supported by reasonable growth in MENA (Middle East and North Africa). Three factors underpin our confidence on Marico’s earning prospects: (a) likely benign raw material environment over the next 18-24 months (Copra accounts for 40-50% of the material cost); (b) strong performance of Parachute volumes in recent quarters and healthy growth prospects in the VAHO segment; and (c) good traction being witnessed on new product development. Crucially, at a time when both sector multiples as well as ability of peers to pass on the emerging material cost pressures are under question, Marico provides far higher visibility compared to its peers. Moreover, with over 30% of sales coming from rural (management’s target is 40%) and particularly with its technological edge over peers, Marico is emerging as an interesting play on rural growth.
Technical Outlook: The Marico share looks good on the daily chart for medium-term investment. It has broken out of the spike pattern formed on the daily chart. The stock trades near its all-time high and above all important moving averages like the 200 DMA level on the daily chart.
Start accumulating at this level of Rs.381.5 and on dips to Rs.350 for medium-to-long term investment and a possible price target of Rs.450+ in the next 12 months.