Marico share price hits 10% UPPER CIRCUIT today; Kotak says BUY, target price Rs 465

Marico share price today: Kotak Institutional Equities says that Marico’s 4Q growth print (India volume/value up 25%/35% yoy; 2-yr CAGR at 10%/12%) was robust even after factoring benefit of some planned normalization of historical skew in 4Q and 1Q revenues. The core portfolio– CNO, VAHO and Saffola – has started displaying resilience and a food portfolio, led by oats and supported by new launches, is driving a fresh promise. Higher-than-expected growth offsets Raw material pressure in the near-term; we maintain estimates, rollover and revise face value to Rs 465 (Rs 450).

Marico has achieved good growth momentum across core oils portfolio (resilience in parachute portfolio, continued strength in Saffola and sustained turnaround in VAHO) and its efforts to create new growth engines under the Saffola brand is yielding results (successful launch of honey, launch of immunity booster products and Chywanprash). Copra prices have started to ease, Marico has pushed another 15-20% price increase (45-50% cumulative) in Saffola to offset RM headwinds. Kotak increases revenue growth forecast, trim margins and broadly FY2022-23E EPS. Kotak rollover and revise FV to Rs 465 (Rs 450 earlier) implying 40X Jun-23 PE.

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Marico witnessed strong broad-based growth momentum in the domestic business with 25% yoy volume growth 18-20% underlying volume growth adjusted for partial normalization of historical skew in 4Q and 1Q) during the quarter. Rural continued to lead with 1.8X higher growth compared to urban. E-commerce (+81% yoy to 8% of sales) and CSD (+59% yoy) performed well while modern trade declined 17% yoy due to pantry loading in base quarter. Rural/urban GT grew 42%/23% yoy in volume terms. In the near-term, Marico expects weaker growth trends due to closure of retail outlets with Covid-led lockdowns in urban markets.

Kotak says that Management of Marico expects raw material prices to remain range bound in the near-term before moderating. Kotak notes that sharp inflation in key edible oil inputs are driven by supply constraints, with no meaningful change in underlying demand. Despite significant price hikes, Marico hasn’t witnessed and doesn’t expect consumer downtrading in the Saffola portfolio considering the typical affluent-urban customer profile. Media spends continued emphasizing the importance of proactive heart care