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Prabhudas Lilladher Report
We are tweaking FY24/25/26 earnings per share estimates of Marico Ltd. by -1.0/2.6/-0.6% given tepid consumer demand in rural India and local competition in core categories of value added hair oil, Saffola and Parachute.
Q2 FY24 results were in line with PAT beat led by lower tax rate by 260 bps. While Parachute is expected to show gradual revival, VAHO and Saffola will continue to face heightened competition from both regional and smaller players.
Innovation funnel remains strong along with portfolio diversification by accelerated scale up in foods, D2C portfolio and B2C acquisitions which will enable the company to achieve the targeted 20% of sales from these in FY24.
Although near term guidance is positive, we believe Ebitda margins will peak out in the current year and see a gradual decline of 130 bps over next two years.
We factor in 11.5% sales growth but 7.9% PAT CAGR over FY24-26 on as margins revert towards mean.
We value Marico at 42 times Dec-25 earnings per share and assign a target price of Rs 559 (Rs 556 earlier based on 43 times Sept-25 EPS).
Although Marico has corrected 14% from peak, it lacks near term triggers. Retain 'Hold'.
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