We recently met Harsh Mariwala, chairman and MD, Marico Ltd. Although the company expects near-term demand to be subdued, it is optimistic on the long-term trend. It has taken price hikes to counter rise in copra (raw material) prices and is open to further hikes if copra prices continue to increase.
Marico expects the tepid demand to impact Parachute coconut oil over near term but maintains Parachutes long-term volume growth guidance of 7-8%. Saffola and value-added portfolio performance will continue to grow faster than rest of the portfolio.
The company is optimistic on international business, with the exception of West Asia, where it is taking corrective action. Maintain buy.
Demand in hair oil category remains subdued over the near-term. Price hikes have been taken to counter rise in copra prices (in Parachute portfolio, prices have been increased in the 9-17% range, value added portfolio has witnessed increase in range of 4-18% while Saffola price has been increased by 3-9%).
Marico estimates FY14 domestic volume growth in the mid to high single-digit, while sales growth, bolstered by price hikes, is expected to be in the 12-13% range.
We remain enthused by Maricos focus on new growth drivers and its effort as an emerging market MNC. We also like its aggression in the breakfast space with continued dominance in hair oils and super premium refined edible oils space. Currently, the stock is trading at 26.9x and 22.8x FY14E and FY15E EPS, respectively.