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Marico Limited – Strong Growth Visibility – Morgan

March 4, 2009

Morgan in a report released just minutes ago has upgraded Marico Ltd to OVERWEIGHT with target price revised upwards.

Copra prices (Marico’s key input cost) have declined 10% in recent days. Similarly, Safflower oil prices, a key input for its edible oil business, have fallen 25% over the past couple of weeks. We believe this sharp fall in key input costs improves the probability for margin expansion in Marico’s hair care business and higher volume growth in its edible oil business.

Marico has transformed itself into a Beauty and Wellness company by repositioning its brands, media campaigns and new product offerings to meet evolving consumer needs. This is likely to help the company not only deliver sustainable high growth but also better valuations.

Morgan has set a target price of Rs 84, which is 43% upside based on DCF based intrinsic value for Marico’s core business. Marico is expected to report an EPS of Rs 3.60 for FY10 and Rs 4.2 for FY11. Marico’s earnings growth compares quite favorably with expected earnings degrowth of (-)1% and (-)10% for Sensex companies, as estimated by our India strategist.

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