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Corner Office Back

The Corner office: Confidence on long-term prospects intact

21-Aug-2017

Marico's (MRCO) management appears optimistic about growth prospects from 2HFY18 onward.
Following GST rollout, the company expects to gain market share from unorganized players over the longer term.
Key pillars of 15% sales CAGR are (1) rural opportunities, (2) premiumization, (3) underpenetrated male grooming segment, (4) products enabling hair fall control, and other such problem-solving products involving hair and (5) horizon 2 projects like Beardo, which cater to the new-age customer. The 15% sales CAGR is expected to be driven by volumes (8-10% in India), double-digit constant currency growth in the overseas business, commodity-led inflation (3-4%),and premiumization and new products.
We remain positive on MRCO's longer-term earnings growth prospects. Its investments in distribution technology earlier and on analytics now are far ahead of peers, and should serve it in good stead over the long term. However, valuations at 38.7x FY19E EPS do not leave much room for upside, in our view. We thus maintain our Neutral rating with a target price of INR355 (41x June 2019E EPS, 10% premium to three-year average, led by likely return to ~20% EPS CAGR post the GST hit in 1QFY18).

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