ICICI Securities has expressed a bullish outlook on Marico, recommending a buy rating on the stock and setting a target price of Rs 670 in its research report dated October 1, 2023.
In their report, ICICI Securities shares key takeaways from a meeting with Saugata Gupta, MD & CEO of Marico, outlining various factors contributing to their positive view on the company:
- Marico has set a medium-term volume growth target of approximately 8%, demonstrating an ambition to grow faster on a larger revenue base.
- In the Parachute Coconut Oil (PCNO) segment, improved stability in copra prices and a revival in rural consumption are expected to boost volume growth.
- Competitive intensity in the value-added hair oil (VAHO) segment’s bottom-of-the-pyramid (BOP) sector has normalized. Coupled with a focus on premiumization, this is likely to drive value growth in VAHO.
- In the edible oil segment, Saffola aims to maintain threshold margins while ensuring stable growth.
- The food segment is expected to contribute more revenue than the edible oil business over the medium term. This shift may reduce operating margin volatility due to reduced exposure to cyclical commodity prices.
- Regarding direct-to-consumer (D2C) brands, the focus will be on profitable scaling through the utilization of distribution and marketing strengths.
ICICI Securities maintains its earnings estimates for FY24-25E, projecting a revenue, EBITDA, and PAT CAGR of 9%, 16%, and 16%, respectively, over FY23-25E. They have upgraded their rating from ADD to BUY and set a revised DCF-based target price of INR 670, compared to the previous target of INR 610. At this target price, the stock will trade at a price-to-earnings (P/E) multiple of 49x Mar’25E. A key downside risk to their outlook is higher-than-expected inflation in copra prices.
Investors considering Marico may find this recommendation valuable, as it provides insights into the company’s growth strategy and potential for value creation.
