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Buy Marico; target Rs 476: Arihant Capital Markets

Arihant Capital Markets has a buy call on Marico with a target price of Rs 476.

The current market price of Marico is Rs 394.20.

Time period given by the brokerage is one year when Marico price can reach the defined target.

Investment rationale by the brokerage
Impressive volume growth in key segments to drive domestic business growth: For FY19 and beyond, the Company is confident of delivering 8-10 per cent volume growth coupled with healthy market share gains, on the back of increased investment in the core portfolio, aggressive new product launches, distribution expansion & judicious pricing.

EBITDA margin to be maintained at 17-18 per cent level with upside trigger: Marico will continue to drive cost excellence across the organization to extract savings that will be redeployed towards igniting profitable growth. EBITDA margin is expected to be maintained at 17-18 per cent over the medium term.

Strong distribution network gives opportunity for huge headroom for growth: Marico has a strong distribution network, with overall reach spanning 4.9 mn outlets out of 10.1 mn total outlets, this itself presents a huge opportunity for Marico to grow further in future.

PAT to witness 17.1 per cent CAGR over FY18-20E: With 14.6 per cent CAGR revenue growth over FY18-20E and stable EBITDA margin around 17-18 per cent level, we expect Maricos PAT to grow from Rs 8145mn in FY18 to Rs 11,162mn in FY20E, thereby registering a CAGR of 17.1 per cent over FY18-20E.

Steady cash generating company with healthy dividend payout: During current financial year of FY19, Marico has continued to generate steady cash. The net surplus of the Group as on Q2FY19 end is about Rs 9bn. In absence of any strategic acquisitions, Marico will continue to maintain a healthy dividend payout.

Valuations: At CMP of Rs 377, Marico trades at FY19E and FY20E, P/E multiples of 51.6x and 43.6x respectively. We value the stock at a FY20E target P/E multiple of 55x, which yields a target price of Rs 476 per share. We are bullish on the future prospects of Marico and initiate coverage on the stock with a BUY rating and a target price of Rs 476 (55x FY20E earnings), which gives an upside of 26.2 per cent.

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