Marico shares surge 9% on solid Q4, positive outlook

Shares of consumer goods maker Marico rallied over 9% in intraday trade on Monday, as investors cheered its March quarter earnings report which topped analysts' expectations on both top and bottom line performance. Going ahead, the company expects to deliver 13-15% revenue growth on the back of 8-10% domestic volume growth over the medium term. It forecasts gross margin to expand by 200-250 bps and operating margin to move up by more than 100 bps in FY24.

Snapping its two-session losing streak, Marico shares opened 2.1% higher at ₹504 against the previous closing price of ₹493.65 on the BSE. During the session so far, the FMCG stock gained 9.3% to hit an intraday high of ₹539.50 on the back of strong volume trade. As many as 3.15 lakh shares changed hands over the counter on the BSE compared with a two-week average volume of 0.54 lakh stocks, at the time of reporting.

With a market capitalisation of ₹68,437 crore, the stock touched a 52-week high of ₹554.35 on September 23, 2022, and a 52-week low of ₹462.95 on April 20, 2023. At the current price levels, the stock is down 3% against its 52-week high, while it is 16% above its 52-week low. In the last one year, the stock has given 8% returns to its shareholders, while it rose over 5% in the six-month period. In the calendar year 2023, the counter surged 4.5%, whereas it climbed over 10% in a month and 6% in a week.

For the January-March quarter of 2023, Marico reported an 18.6% growth in consolidated net profit to ₹305 crore as against ₹257 crore in the year-ago period, aided by volume growth and ease in key commodity prices. Excluding the one-time gain of ₹28 crore on the sale of land, profit stood at ₹284 crore.

The company, which owns brands like Saffola and Parachute, posted a 3.6% year-on-year (YoY) rise in its revenue from operations at ₹2,240 crore in Q4FY23, with underlying volume growth of 5% in the domestic business and constant currency growth of 16% in the international business.

The Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) rose 13.6% YoY to ₹393 crore. The EBITDA margin improved to 17.5% in Q4FY23 from 16% in Q4FY22.

“The India business continued to better the performance of the preceding quarter with an underlying volume growth of 5%. Volume growth on a 4-year CAGR basis stood at 6%. Domestic revenues were at ₹1,683 Crore, up 2% YoY, lagging volume growth, due to price drops taken in Parachute Coconut Oil and Saffola Edible Oils during the year in response to falling input prices,” the company said in its earnings report.

Meanwhile, the international business delivered constant currency growth of 16%, despite global macroeconomic uncertainty and currency devaluation headwinds in some of the geographies. Each of the regions posted a strong performance reflecting the underlying strength of the businesses, Marico said.

The company’s flagship product Parachute posted 9% volume growth, while its market share increased by 70 bps during the quarter, supported by stability in consumer pricing and copra prices.

Saffola edible oils witnessed a mid-single-digit volume decline on a high volume base sustained during the outbreak of the omicron variant of Covid-19 last year. Despite the soft quarter, volume growth on a 4-year CAGR basis was in high single digits, while revenue declined in low teens due to pricing interventions during the year.

Going ahead, Marico expects to drive volume-led growth and market share gains across its portfolios, aided by distribution expansion, aggressive cost controls and adequate investment in market development and brand building. Over the medium term, Marico expects to deliver 13-15% revenue growth on the back of 8-10% domestic volume growth in the domestic business and double-digit constant currency growth in the international business. We will aim to maintain consolidated operating margin above the threshold of 19% over the medium term, it added.

The company pegs gross margin to expand by 200-250 bps and operating margin to move up by more than 100 bps in FY24 with easing RM prices, aggressive cost management and a more favorable portfolio mix. 

“We believe Marico is well-placed to drive a mid-to-high teens operating profit growth in FY24. Valuations are not as demanding with the stock now trading below its five-year average,” says JM Financial in a report. The brokerage has given “Buy” call on the stock with a price target of ₹585 for a period of 12 months.

Prabhudas Lilladher has upgraded the stock to “Accumulate” with a target price of ₹550 from ₹523 estimated earlier. “We believe demand revival in Parachute, VAHO and sustained growth in emerging segments in foods and personal care will enable double digit sales growth. We believe MRCO is well placed given benign prices of copra and stability in product pricing environment; sustained traction in new launches in Foods with entry in high growth categories of Peanut Butter & Munchies; and increased focus on digital brands in HPC,” it says in a note.

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