Here is our detailed report on “Should You Buy MARICO LTD for Long Term Investment “
Marico Limited is one of India’s leading consumer goods companies operating in global beauty and wellness categories. With its headquarters in Mumbai, Marico is present in over 25 countries across emerging markets of Asia and Africa. It nurtures leading brands across categories of hair care, skin care, edible oils, healthy foods, male grooming, and fabric care. The company has eight factories in India, located at Puducherry, Jalgaon, Guwahati, Baddi, Paonta Sahib, and Sanand. The company has a pan-India distribution network with a reach of 5.3 million outlets out of a total of ~10.2 million outlets in India. Marico touches the lives of 1 out of every 3 Indians, through its portfolio of brands such as Parachute, Saffola, Set Wet, etc. Currently, the promoter group, Mr. Mariwala and his family members, owns about 60% stake in Marico.
It has several Brands spread across several segments in Domestic & International Markets. Domestic Brands – Parachute and Nihar Naturals in Coconut Oil Segment; Saffola in Super-premium Refined edible oil Segment; Parachute advanced, Nihar naturals and Hair & Care in Value-added hair oil Segment; Saffola oats, Coco Soul and Saffola FITTIFY Gourmet Range in Healthy foods; Livon Serums and Hair & Care in Premium Hair Nourishment Segment; Set Wet, Beardo, and Parachute in Male Grooming & Styling Segment; Kaya Youth and Parachute advanced in Skin Care Segment; Mediker, Veggie Clean in Hygiene Segment. International Brands – Parachute, Hair Code, Nihar Naturals, Mediker SafeLife, Fiancee, caivil, Hercules, Black Chic, Code 10, Ingwe, X-Men, Sedure, Hercules, Just for Baby, Just for kids, Thuan Phat and Isoplus
The Company has 10+ subsidiary companies namely Marico Bangladesh Ltd., MBL Industries Ltd., Marico Middle East FZE, MEL Consumer Care SAE, etc.
Key Rationale :
Parachute’s Dominant presence – Marico’s coconut oil segment continues to be the leader with 61% of market share in terms of volume. In, Parachute, the world’s largest coconut oil brand, has a market share of 54% in terms of volume. It is the only brand with a nationwide reach and dominates the coconut oil market. The Coconut oil segment contributes a whopping 43% of overall domestic revenue. 1 out of 10 coconuts grown in India is used by Marico. The last 10-year Volume CAGR of Parachute rigid packs is around 6%. The parachute segment witnessed sales growth of 20% led by 12% volume growth in Q1FY22. The brand gained an 80 bps market share in the rigid pack in the same period. Healthy operating efficiency – Return on capital employed was a robust 44% in fiscal 2021, with a strong network of 25 clearing and forwarding agents and about 7,300 stockists and distributors providing a retail reach of about 53 lakh outlets in India and a direct reach of nearly 10 lakh outlets. Expected increase in rural reach and focus on direct reach and modern trade (including E-commerce) will help sustain healthy volume growth in the future. The Company has maintained profitability despite volatility in raw material prices driven by controlled costs, pan India distribution network, and strong pricing power. Entry in hygiene segment – After COVID-19, Marico forayed into the hygiene category by launching (i) Mediker Sanitizer (Rs.50/100/250 price points) and (ii) Veggie Clean (Rs.150/290 price point) (iii) House Protect (indoor disinfectant) and Travel Protect (out-door disinfectant). In the food portfolio, Marico launched Honey under the brand Saffola in June’20. MRCO is also aggressively broadening and scaling up its existing food portfolio; oats, soup, green tea, green coffee, etc. Hygiene and food will help Marico to reduce dependency on non-essential products
Management expects gradual sequential improvements in gross margins from Q2FY22 onwards and to eventually settle down in the second half. The company aims to grow (i) its volume in the range of 8-10% with sustainable gains in market shares (ii) its international business in double digits (iii) its food business to Rs.500crs in the current year. Newly launched Saffola Honey gained 25% market share on e-commerce channel & double-digit market share in the modern trade. Saffola Soya Chunks garnered a market share of 14% in the modern trade. The company is expanding the products reach to East & North India. It also aims to generate Rs.450-500crs of sales by FY24 through digital-first brand only. The company has invested in digital brands like Beardo, Pure Sense, Just Herbs & Coco Soul in Male grooming & Skin care products.
The company benefited from a 13% sequential drop in prices of one of its major inputs (i.e., copra) during Q1FY22. With impact of second-wave seen to be reducing in the domestic market, along with demand revival, we expect margins to improve further in the coming quarters. Hence, we recommend a BUY rating for the stock with the target price (TP) of Rs.626, 61x FY22E EPS.
Hope you liked our ARticle “Should You Buy MARICO LTD for Long Term Investment “, Please also read our Other Article on “Should You Buy TCS LTD for Long Term Investment “https://equitygyan74899394.wordpress.com/2021/10/12/long-term-investment-stock-tcs-ltd/
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