Marico Stock Buy Call
Price target: Rs70
Current market price: Rs63
Oil on the boil
Result highlights
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The Q2FY2008 results of Marico were as per our expectations. In Q2FY2008, the net revenues of the company grew by 22.7% year on year (yoy) to Rs463.8 crore. The growth was driven by a 16% organic growth and a 7% inorganic growth.
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The operating profit margin (OPM) declined by 81 basis points to 13.95% on account of a higher raw material cost, which as a percentage of sales increased by 210 basis points to 51.6%. Consequently, the operating profit grew by 16% yoy to Rs64.7 crore.
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A substantial decline of 49.3% in the depreciation charge due to a write-off of intangibles in FY2007 along with a tax incidence of just 19.3% (compared with 30.9% in Q2FY2007) led to a 63% jump in net profit to Rs42.2 crore.
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The quarter witnessed a good volume growth across products with Parachute coconut oil growing by 8%, focus segment products growing by 15% and Saffola growing by 21% yoy. The international consumer product business grew by a strong 73% aided by the Egyptian business. Also, the chain of Kaya clinics expanded to 51 as the company added three new clinics during the quarter.
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We maintain our positive outlook on the company and expect its turnover to grow by 21% in the current financial year. The stock is trading at valuations of 18.8x FY2009E earnings per share (EPS) and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 12.4x FY2009E. We maintain our Buy recommendation on the stock with a price target of Rs70.