Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

Marico - Working capital improvement may accelerate value creation; reiterate preferred pick status - ICICI Securities

Posted On: 2021-06-01 06:17:56 (Time Zone: UTC)

While Indian FMCG's value-creation story over 2010-2020 has been primarily driven by good earnings growth, we note instances (Emami and GSK Consumer) where accelerated value-creation was driven by working capital (WC) improvement (and hence higher OCF / FCF). In this report, we highlight the Marico story - it improved WC by 30 days to 17 days in FY21 driven by (1) SKU rationalisation, (2) new manufacturing footprint and automated systems, (3) lower receivables and (4) stricter credit control in general trade. We believe this improvement is largely sustainable and model WC days of 24 days and 23 days in FY22e and FY23e. BUY; TP Rs550.

- Case studies of balance sheet driven value creation: Emami and GSK-Consumer (now acquired by HUL) are two FMCG companies where OCF / FCF improvement drove value creation in the past. During FY04-FY15, Emami's profit, and market cap CAGR were 33% and 46% with a big jump in FCF. Similarly, GSK's profit, FCF and market cap CAGR (over FY04-FY14) were 24%, 14% and 37%. See Figures 3-6. Furthermore, RoCE for both Emami and GSK improved to 44% and 50% from 7% and 15% during FY04-FY14. We note that GSK's working capital improvement is credited to new policies under the stewardship of the then CFO, Ramakrishnan Subramanian (Subu).

- Marico value creation to be driven by both balance sheet improvement and P&L: We highlight balance sheet improvement at Marico driven by management's focus on working capital efficiencies - inventory (reduced inventory days by 18 days to 51 days in FY21) focus driven by SKU rationalisation, new manufacturing footprint and automated systems, lower receivables (reduced receivables days by 9 days to 18 days in FY21) through order management system with zero manual intervention and stricter credit control in general trade. That said, some of the working capital reduction was driven by (1) lower share of modern trade and Canteen Stores Dept. (have higher receivables than general trade) and (2) lower raw material inventory (particularly copra) given the expectation of (some) input price correction.

- Leaner system to help drive NPD agenda. We believe a leaner distribution system (possibly improving distributor ROI as well) will give Marico the headroom to push its new products in GT. Some of the initial traction may be potentially seen in Healthy Foods (Honey, Chyawanprash and Soya Chunks). Marico has already ramped up (1) direct distribution in both rural and urban areas and (2) e-commerce share (8% contribution - amongst the highest in our coverage) to aid new product development and premiumisation.

- Marico has P&L drivers too - We model earnings growth of 12% and 21% in FY22e and FY23e driven by (1) continuing market share gains in Parachute coconut oil, (2) sustained recovery in value-added hair oils (VAHO) with all the brands likely to grow in double-digits, (3) continued growth momentum in Saffola edible oils (increased penetration), (4) new launches in healthy foods portfolio (entered larger categories like Honey, Chyawanprash, Noodles etc. - targeting Rs4.5-5bn revenue in FY22 and Rs8.5-10bn by FY24) and (5) international business likely the most resilient (versus Dabur and GCPL) with low exposure to the Middle East (12%).

- Valuation and risks: Our earnings estimates are unchanged; modelling revenue / EBITDA / PAT CAGR of 13 / 13 / 16 (%) over FY21-23E. Maintain BUY with DCF-based target price of Rs550 (Rs500 earlier). At our target price, the stock will trade at 45x P/E multiple Mar-23E. Key downside risk is higher-than-expected inflation in copra prices and demand deceleration.

Shares of MARICO LTD. was last trading in BSE at Rs.475.1 as compared to the previous close of Rs. 470.95. The total number of shares traded during the day was 64076 in over 2098 trades.

The stock hit an intraday high of Rs. 479.95 and intraday low of 471.4. The net turnover during the day was Rs. 30459575.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

Aditya Birla Sun Life AMC - IPO - Healthy Outlook with Improving Operating Efficiency - Reliance Securities

Maintain BUY on Max Healthcare - Emerges leaner and stronger - HDFC Securities

Ujjivan Small Finance Bank - Credit cost guidance reflects improving asset quality outlook - ICICI Securities

Event Update - United Breweries - ICICI Direct

IPO Review - Aditya Birla Sun Life AMC - ICICI Direct

Auto Sector Update - Will EVs impact the 'EV' - Part Deux - HDFC Securities

Automobile Sector - Monthly Quick View - Aug'21 - Mixed Performance across Segments - Reliance Securities

Axis Securities initiating coverage on ICICI Securities

Company Update - Minda Corporation - Q1FY22 - ICICI Direct

Quant Pick - PVR Ltd - ICICI Direct

Quant Pick - ONGC - ICICI Direct

Peak in the headline wholesale inflation is behind us - WPI August 2021 - Acuité Ratings

Sansera Engineering - IPO - Strong Outlook with Steady Cash Flow - Reliance Securities

APL Apollo Tubes - Journey from a semi-commodity player to a branded one - HDFC Securities

Nazara Technologies Ltd - Upbeat in medium-term, Uncertain over Long-term - YES Securities

IPO Review - Sansera Engineering Ltd - ICICI Direct

Overall index is still 0.3% lower than the pre-pandemic levels - IIP July 2021

YES SECURITIES on Monthly General Insurance & Mutual Funds Data

India urban logistics spaces expected to cross 7 million sq. ft by 2022: JLL

Neogen Chemicals - Breaking into the next orbit with a bang - HDFC Securities

Gladiator Stocks - Bharti Airtel Ltd - ICICI Direct

Gladiator Stocks - V-Guard - ICICI Direct

Balkrishna Industries - Industry export growth accelerates - ICICI Securities

HDFC Life Insurance - Exide Life Acquisition - Maintain ADD - YES Securities

Gladiator Stocks - Grindwell Norton - ICICI Direct

Gladiator Stocks - Godrej Properties - ICICI Direct

Monthly Auto Volumes - August 2021 - ICICI Direct

Stock Tales - Easy Trip Planners - ICICI Direct

IPO Review - Vijaya Diagnostic Centre Ltd - ICICI Direct

AU Small Finance Bank - Attrition at top level remains key challenge; business momentum sustained in Jul/Aug'21 - ICICI Securities

Gladiator Stocks - State Bank of India - ICICI Direct

Gladiator Stocks - PNC Infratech - ICICI Direct

Vijaya Diagnostic Centre Ltd - IPO Note - YES Securities

Consumer Durables Sector - Lockdown mars performance yet again - Institutional Research Desk at HDFC Securities

75% of the employees today want to be in office at least once a week as compared to 52% in October 2020: JLL

Gladiator Stocks - Safari Industries - ICICI Direct

Gladiator Stocks - Interglobe Aviation - ICICI Direct

IPO Review - Ami Organics Ltd - ICICI Direct

Q1FY22 GDP - 31st Aug 2021 - Acuité Ratings & Research

Avanti Feeds - Higher input prices hurt margins - ICICI Securities

Company Update - Restructuring - Aarti Industries - ICICI Direct

Q1FY22 Company Update - MM Forgings - ICICI Direct

Company Update - Arvind Fashions - ICICI Direct

Zomato - Can margins and multiples surprise? - ICICI Securities

Ujjivan Small Finance Bank - Top management change and lumpy provisioning concern to weigh on valuation in near term - ICICI Securities

Bharat Dynamics - Guided missile systems to drive orderbook and profit growth - ICICI Securities

Economy - Continued accommodation necessary despite inflationary risks: MPC minutes - ICICI Securities

InterGlobe Aviation - Annual report analysis: Liquidity management remains the mainstay in anticipation of traffic recovery - ICICI Securities

General insurance - Health remains dominant growth driver; Strong all-round performance by Bajaj Allianz - ICICI Securities

Earnings Wrap Q1FY22: Resilient earnings, limited impact of second Covid wave - ICICI Direct

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020