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Marico Limited Buy
Weak numbers could present an opportunity
The spike in copra prices (40% of raw material cost) is not structural but a
temporary one and should ease in February when the best copra produce
for the year floods the market. The recent price hikes (cumulatively 24% for
parachute) should be withdrawn only gradually as copra prices fall to make
up for lost margins in 3QFY11. Nonetheless, we believe third quarter numbers should be weak and, along with the recent stock price correction,
should present a good opportunity to buy the stock.
Refer our earlier note Unusually high copra price presents an opportunity
dated 15 Jan 2011 for more details
3QFY11 estimate - 22% revenue growth but a flat bottom line
An effective 13.5% price hike for Parachute (24% overall) and a 9% price
hike in Saffola(13.8% overall) for 3QFY11E would be insufficient to counter
the raw material price increase and would result in a 591bps decline in gross
margins in our opinion. However, a 200bps reduction in the ad-to-sales ratio
could help contain the EBITDA margin decline to only 277bps.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Marico Limited Buy
Weak numbers could present an opportunity
The spike in copra prices (40% of raw material cost) is not structural but a
temporary one and should ease in February when the best copra produce
for the year floods the market. The recent price hikes (cumulatively 24% for
parachute) should be withdrawn only gradually as copra prices fall to make
up for lost margins in 3QFY11. Nonetheless, we believe third quarter numbers should be weak and, along with the recent stock price correction,
should present a good opportunity to buy the stock.
Refer our earlier note Unusually high copra price presents an opportunity
dated 15 Jan 2011 for more details
3QFY11 estimate - 22% revenue growth but a flat bottom line
An effective 13.5% price hike for Parachute (24% overall) and a 9% price
hike in Saffola(13.8% overall) for 3QFY11E would be insufficient to counter
the raw material price increase and would result in a 591bps decline in gross
margins in our opinion. However, a 200bps reduction in the ad-to-sales ratio
could help contain the EBITDA margin decline to only 277bps.
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