>Marico Ltd. (ENAM Securities)

-> Flush season (Feb-May) promises to ease RM cost pressures: Marico's flagship brands, Paranchute & Saffola {~53% sales & ~70% of profits) underwent acute gross margin contraction in 9mFY09 due to a sharp rise in RM prices (as demand for edible oil oils increased). Despite siginificant pricing power, Marico tried to maintain a balance between margins & affordability. However copra price is softening due to the current flush season & demand slowdown (consumer switching to palm oil).

-> Volume growth remains firm, despite sequential slowdown: Volume growth in saffola (~15% of group sales) will revert back to 8-10% in next 2-3 quarters led by price corrections. Coconut & hair oil segments are expected to maintain growth rate of ~8% & ~13% respectively, led by ground activations & conversion from loose packs. However, domestic revenue growth will slow to 12% in FY10E, due to lower price led growth.

-> International business (20% of sales) unlikely to be impacted: Receding inflation fears (easpecially in Bangladesh & Egypt), distribution initiatives and entry into neighbouring international markets will maintain growth. Supply chain initiatives to yield ~100 bps expansion in margin for international business.

-> Kaya and new launches (ZEST) unlikely to impact earnings: Kaya to post PBT loss of ~Rs 40 mn, but expects to achieve cash breakeven in FY09E.

At CMP (Rs 57) the stock is trading at 18.3x FY09E and 14.9x FY10E earnings. Our 1 year TP of Rs 69 is based on 12 month rolling fwd EPS of Rs 3.8 & target P/E of 18x. Maintain sector Outperformer rating.

To see full report: MARICO