Motilal Oswal: neutral on Marico; target of Rs 240

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Motilal Oswal's research report on MaricoEBITDA in line, Sales/PAT below estimates; sales in line: MRCO’s consolidated sales were up 6.5% YoY to INR13.0b (est. of INR13.3b), EBITDA grew by 26.4% to INR2.1b (est. of INR2.1b) and adjusted PAT grew by 19% to INR1.31b (est. of INR1.37b). Consolidated volumes grew 10.5% led by international volumes as India volumes were marginally lower than forecast. Domestic business reported revenue growth of 4%, mainly led by Saffola (13% volume and 14% value growth), and VAHO (11% volume and 12% value growth). Sharp Market share gains were witnessed across all key segments. Consistent double digit volume growth, broad based market share gains and sharp gross margin expansion are the key positives from 4QFY16 results. Management’s guidance for soft value growth in 1HFY17 amidst further 6% price cuts in Parachute in 1QFY17 (Copra prices continue to decline) leads us to cut our estimates for FY17 by ~2% but we upgrade our FY18 EPS by equal magnitude as we expect value growth to return in FY18 [management commented about bottoming of Copra prices]. We like MRCO’s dominant market share positioning in its core categories and its approach of driving volumes over margins. Our admiration for the franchise notwithstanding, valuations at 40.9x FY17E and 35.1x FY18E EPS leaves us no elbow room to turn more constructive at this stage. Retain Neutral with a revised target price of INR240. Given the massive outperformance of MRCO vs. markets and other consumer peers (~35% outperformance to index and 23% outperformance vs. Dabur over 12 months) , we believe a shift from MRCO to DABUR is justified as we expect a similar earnings growth over FY16-18E of 15- 16% CAGR for both the names.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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