MOSL: MARICO (Upgrade to Buy)-High-quality franchise, reasonable valuations
Marico: High-quality franchise, reasonable valuations; Upgrade to Buy
(mrco IN, Mkt Cap USD5.6b, CMP INR320, TP INR390, 22% Upside, Buy)
- 2QFY19 consol. net sales grew 19.6% YoY to INR18.4b (est. INR17.7b). Domestic revenue grew 20% YoY with 6% volume growth. EBITDA grew 13.5% YoY to INR2.9b (est. INR 2.8b). Adj. PAT rose 18% YoY to INR2.2b (est. INR2b).
- gross margin contracted 290bp YoY to 44% (est. 44%). Consol. A&P expenses as a percentage of sales was down 70bp YoY to 9.6%. There was also a decrease in other expenditure as a percentage of sales by 60bp YoY to 12.2% and staff costs decreased by 80bp YoY to 6.2%. Thus, EBITDA margin decline was restricted to 90bp YoY to 16% (est. 15.9%).
- In 1HFY19, sales, EBITDA and adj. PAT grew 20.1%, 11.1% and 13.6%, respectively. EBITDA margin contracted 140bp YoY to 16.8%. For 2HFY19 we expect sales, EBITDA and Adj. PAT growth of 12.2%, 19.9% and 17.4% YoY, respectively.
- Concall highlights: (1) VAHO volumes are likely to be in double-digits in 2HFY19. CSD, which impacted VAHO sales in 2QFY19, is stabilizing, (2) For 2QFY19, rural grew 24% YoY while urban grew 11% YoY.
Marico is a consumer products company operating in the beauty and wellness space. Co. has multiple brands in the categories of hair care, skin care, health foods, male grooming, and fabric care. Co.'s India business markets household brands such as Parachute Advansed, Saffola, Hair & Care, Nihar, Mediker, Revive, Manjal, Setwet, Zatak and Livon among others. The International business offers brands such as Parachute, Hair Code, Fiancee, Caivil, Hercules, BlackChic, Code 10, Ingwe, X-Men, L'Ovite and Thuan Phat.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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