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MOSL: MARICO (Buy)-Another month of benign RM price environment-Copra prices ease further

Marico: Another month of benign RM price environment; Copra prices ease further, other commodity prices benign too

(MRCO IN, Mkt Cap USD6.8b, CMP INR364, TP INR460, 26% Upside, Buy)

 

Input cost prices have significant implications on Marico’s (MRCO) business operations. In this note, we thus provide an update on the price trends in copra and other key commodities for MRCO in Mar’19:

Copra cost down 7.7% MoM

• As mentioned in our 4QFY19 for MRCO (2nd April’19), input cost pressure is easing, especially for copra, which accounts for 40-50% of the company’s RM cost. Based on the latest data, copra Calicut price was down 7.7% MoM in Mar’19. Costs of other key commodities – except LLP (+4.5% MoM) – also remain benign (Cochin coconut oil price down 6.6% MoM and HDPE price down 0.6% MoM).
• Average copra Calicut prices were down 18.7% YoY to INR111.3/kg in 4QFY19. Even other key commodity prices were lower during the quarter (Cochin Coconut Oil down 15% YoY, LLP down 3.2% YoY and HDPE down 9.2% YoY).
• Notably, copra prices have been on a downtrend for the second consecutive month now, after a marginal upmove over Dec-Jan. Management had highlighted in its last quarter concall that it expects copra costs to ease by 15-20% YoY in FY20 (from the flush season beginning in Mar’19).
• MRCO has not taken any pricing action, in line with its commentary. We believe the company may tweak promotional efforts, if required, and will only take proactive pricing action if there a significant reduction in copra prices relative to expectations. As of Apr’19, there is no major change in consumer offers for the Parachute Coconut Oil portfolio compared to the previous month.