Marico
We downgrade Marico from Neutral to Underweight as the stock has performed well in the recent
past and is fully valued, in our view. Moreover, copra prices are on the rise (up 18% from the bottom 2
months ago). Copra is a major input cost for Marico; c15% of overall company sales and c45% of
Parachute (its coconut oil brand) sales. While Marico may take price increases (indeed, it has already
taken some) to offset the cost increase, there is a possibility that this may not fully cover the cost
inflation, leading to downside risks to the EPS. Moreover, Marico is more leveraged to the oil table than
any other company in our coverage. This results in inherent volatility of margins for Marico, which
results in lower multiples compared to other FMCG stocks due to higher risk.
Marico has been trying to diversify its revenue base but has met limited success. Extending Saffola into
other health foods such as salt, atta and rice are projects, which even if successful, will give benefits only
in the long term. Coconut oil has been growing well in the recent past due to conversion from loose oil to
branded oil, but the past success on this front means that opportunity in future is diminishing. Given the
full valuations and short- and long-term risks, we downgrade Marico to an Underweight from a Neutral.
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