Buy Marico; target of Rs 420: Sharekhan

Sharekhan's research repor on Marico

Q2FY2021 performance was largely in line with expectations as revenues grew by ~9% while OPM improved marginally by 26 bps to 19.6% (as gross margins slumped by 163 bps). Domestic sales volumes grew by 11% in Q2FY2021 (as against a 14% decline in volumes in Q1FY2021), led by a 10% volume growth in Parachute rigid packs, 4% volume growth in value-added hair oils (VAHO) portfolio and a 20% volume growth in Saffola edible oil. Parachute rigid packs to maintain 5-7% volume growth, while Saffola edible oil would achieve low-teens volume growth in the near to medium term. Though higher copra prices would impact gross margins in the near term, operating efficiencies would help mitigate impact on OPM. We have broadly maintained our earnings estimates for FY2021/22/23E.

Outlook

We retain a Buy on the stock with an unchanged price target of Rs. 420.

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