Valuation comfort Marico’s 3QFY15 ::HDFC Sec, report

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Valuation comfort Marico’s 3QFY15 revenue grew 21% YoY to Rs 14.5bn, aided by the significant price hikes taken across the product portfolio to offset part of the RM inflation (copra up 34% YoY). Volumes disappointed with a mere 2% YoY growth (vs 1QFY15 : 7%). The domestic business reported a resilient performance with revenues up 26% and vols up 5% YoY. The overseas business posted 4% revenues growth (+6% in const currency). EBITDA margin contracted 50bps YoY to 16.3% led by higher COGS (+286bps). APAT grew 18.1% YoY to Rs 1.6bn (above est). As witnessed historically, higher copra prices will likely reduce the competitive pressure on Parachute. Also, company gained market share in more than 80% of its portfolio (being the leader in more than 90% of portfolio). Marico aspires to double revenues over the next four years (18% CAGR). With urban sales contributing ~70% of total domestic sales, the imminent urban revival will considerably benefit the company. Also, Marico is the cheapest stock in the FMCG space (ex-ITC). We upgrade Marico to BUY with a TP of Rs 385 (28x FY17E EPS). Price hikes aid sales, volume growth disappoints  Revenue grew 21% YoY to Rs 14.5bn (below est).  Parachute volumes grew 8% (vs 7% in 2QFY15). Full impact of price hike and cooling of copra prices (down 10% vs 2QFY15) will drive margins in coming quarters.  Saffola reported muted volume growth of 3% (vs 9% in 2QFY15). Price hikes in Saffola, lower ad spends and competitive pressure hurt volumes. VAHO reported 10% volume growth (vs 13% in 2QFY15). Paras brands reported flat sales (vs 21% growth in 2QFY15). EBITDA margin contracts, recovery likely  EBITDA margin contracted 50bps YoY led by higher COGS (+286 bps). This was partially offset by lower A&P (-63bps), staff cost (-26bps) and other expenses (- 147bps). Softening in key RM prices (kardi oil: 11%; rice bran oil: 15%, LLP: 17%) would help revive margins in the coming quarters. Also, Copra prices have declined by 10% vs 2QFY15.

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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011137