MOSL: MARICO (Buy)-New products traction picking up-promising to boost medium-term earnings growth prospects

MARICO: New products traction picking up; promising to boost medium-term earnings growth prospects

(MRCO IN, Mkt Cap USD6.7b, CMP INR373, TP INR465, 25% Upside, Buy)

Over the past few years, one of the disappointments investors harbored for Marico was regarding the subdued performance of its new launches. Except for Saffola Masala oats (launched over six years ago) none of the new launches have contributed significantly to the sales growth. However, over the past 18 months, Marico has pulled up its socks and now has a strong product pipeline with a few initial successes. We recently met Marico’s management to understand reasons for the new improved pipeline and to gauge the company’s growth targets, going forward.

Our view on Marico’s current position and the role of new products

• Parachute- Growth in both 1QFY19 and 2QFY19 (despite a challenging base) was extremely encouraging. We believe it is possible for Marico to grow higher than its historical average in a segment that is still important for Marico.
• There has been an evident step-up in the pace of new launches over the past 18 months. There have been a couple of notable successes (still small, but fairly scalable) too. The recent pipeline and successes so far could enable a new era of growth for Marico if all goes according to plan.
• The problems for VAHO seem to be temporary. Of late, performance of the youth portfolio has been encouraging and international business also seems to be back on the growth path. It is only Saffola where growth may be a concern in the near-term (possibly with recovery taking a longer period than management’s expectations of a revival in 1HFY20).