27 July 2020
1QFY21 Results Update | Sector: Consumer
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TP: INR405 (+16%)
Significant beat on expectations, outlook improving
Brief overview of results and stock
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
452.5 / 6.2
404 / 234
Significant beat on estimates
Marico (MRCO) reported a beat on all fronts, barring volumes, in 1QFY21
results, with a surprise on margins. Importantly, May and June witnessed
positive sales growth, and this trend has continued in July. Recovery has
been seen in Value-Added Hair Oils (VAHO) as well, along with Parachute
and Saffola continuing to do well. The base is also more favorable.
With earnings much better than previously feared EPS decline, valuations
still appear inexpensive at 36.8x FY22 EPS. Targeting 40x Jun’22 EPS, we
TP of INR405, implying 16% upside.
Marico’s 1QFY21 consol. net sales declined 11% YoY
to INR19.3b (est.:
INR18.6b). EBITDA grew 1.3% YoY to INR4.7b (est.: INR4b). PBT was up 0.2%
YoY to INR4.4b (est.: INR3.8b). Adj. PAT declined 3.1% YoY to INR3.2b (est.:
Consol. gross margins expanded by 140bp YoY to 48.9%.
Lower A&P spends
as a percentage of sales (down 300bp YoY to 7.1%; absolute spends at -
37.4% YoY) were partially offset by higher staff cost (up 110bp YoY to 7%)
and other expenses (up 20bp YoY to 10.5%). EBITDA margins thus expanded
by 300bp YoY to 24.3%.
Domestic revenue/volumes declined
by 15%/14% YoY (est.: 12.5% domestic
volume decline). Within domestic business, Parachute Rigids’ volumes
decline by 11% YoY, VAHO volumes decline by 30% and Saffola (Refined
Edible Oil’s) volumes were up 16%.
Financials & Valuations (INR b)
2020 2021E 2022E
73.2 74.2 84.7
Sales Gr. (%)
14.7 15.4 17.3
EBITDA Margin (%)
20.1 20.7 20.4
10.5 10.8 12.3
Adj. EPS (INR)
EPS Gr. (%)
Highlights from management commentary
23.4 30.5 31.2
Business has seen smart recovery, with 3% sales growth in May and June
combined, and this momentum continues in July.
34.9 31.1 30.9
MRCO has taken a 5–6% promotional pricing cut in Parachute and believes
31.9 28.0 28.0
market share gains (62% currently) from both organized and unorganized
96.0 91.5 92.1
players may be significant and, more importantly, permanent.
43.1 41.9 36.8
The company targets flattish sales for the full year, with over 20% EBITDA
margins. From around INR2b sales in FY20, the Foods business’ sales are
15.0 11.5 11.2
targeted at INR3–3.5b in FY21 and INR5b in FY22.
30.5 28.5 25.4
Div. Yield (%)
Valuation and view
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
FII Includes depository receipts
Changes to the model have resulted in a ~3% increase in FY21/FY22 EPS.
Recovery in the Non-Discretionary portfolio is extremely encouraging, and
ongoing momentum and significantly high growth targets in the Foods
portfolio are encouraging. As highlighted in
our management meet note last
MRCO’s traction on both topline growth and margins is encouraging
v/s earlier fears of EPS decline in FY21.
While the jury is still out on the success achieved in new product
development, which would elevate the medium to longer term earnings
trajectory as well as valuation multiples, the stock at 36.8x FY22 EPS appears
to still provide healthy upside over the next year, with a superior outlook
than most peers and a far less volatile international business. We target 40x
Jun’22 EPS, giving us TP of INR405, implying 16% upside.
Krishnan Sambamoorthy – Research analyst
Research analyst: Pooja Doshi
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
3 September 2019