Marico’s net sales increased by 22.5% to Rs1,906.7 crore in FY2008 from Rs1,556.9 crore in FY2007. This comes on the back of a strong volume growth of 13%, a price hike of 5% and an inorganic growth of 4.5% during the year.
The company’s focus portfolio delivered a strong performance in FY2008. Its flagship brand Parachute, premium edible oil brand Saffola and hair oil basket achieved a healthy volume growth of 11%, 22% and 16% respectively during the fiscal.
It is aiming at rationalizing its portfolio to focus on its beauty and wellness business. It divested its processed food business operated under the brand Sil to Scandic Food India Pvt Ltd.
Margins under pressure
Though we like Marico’s strategy of achieving an inclusive growth through organic and inorganic initiatives, we believe its profitability will remain under pressure in the near term due to surging input cost and higher marketing spends.
Consequently, even though we expect a good 18.8% growth in its top line, we foresee a nominal growth of 9.9% in its bottom line to Rs185.8 crore in FY2009.
At the current market price of Rs50, the stock trades at 16.2x and 12.7x its FY2009E and FY2010E earnings per share (EPS) of Rs3.1 and Rs3.9 respectively. We maintain BUY recommendation with a price target of Rs77.