Marico shares rally 10% after Q4 results; is more steam left in the FMCG major?

Shares of Marico Ltd surged during the trading session on Tuesday after the company reported a strong set of performance in the March 2024 quarter and brokerage firms remain positive on the counter after the earnings of the FMCG major.

Marico reported a 5 per cent jump on a year-on-year (YoY) basis in its March 2024 quarter consolidated net profit at Rs 320 crore on Monday. The profit stood at Rs 305 crore in the corresponding period of the previous financial year. However, FMCG major's revenue from operations rose merely 1.7 per cent to Rs 2,278 crore in Q4FY24 from Rs 2,240 crore in the year-ago quarter.

Ebitda increased by 12.5 per cent YoY to Rs 442 crore, while EBITDA margin expanded by nearly 200 basis points to 19.4 per cent from 17.5 per cent last year. Marico's India business remained flat on a year-on-year basis, but its EBIT expanded by 12.3 per cent to Rs 339 crore. Revenue for the international business increased by 7.4 per cent from last year to Rs 598 crore.

Following the announcement, shares of Marico surged more than 9.8 per cent to Rs 559.35 on Tuesday, with a total market capitalization of more than Rs 75,000 crore. The scrip had settled at Rs 531.05 in the previous trading session on Monday

Brokerage firms believe that Marico's earnings were in line with the expectations and volume growth remained healthy. However, the company has to tackle commodity price cycle and management's focus on the domestic sales growth will be widely watched.

The improvement in rural market, market share gain, accelerated growth in foods and premium personal care, healthy growth in international business, and the normalization of price cuts should help Marico deliver better revenue in FY25-26E. Marico has been sustaining double-digit EBITDA growth, said Motilal Oswal which has 'buy' rating with a target price of Rs 625.

On the margin front, however, further expansion is unlikely with key commodities inching up, thereby resulting in low double digit EBITDA growth for FY25E, said JM Financial Services, which has buy rating on the stock with a target price of Rs 600 on the stock.

Marico's 4QFY24 performance was largely in line with expectations, said Nirmal Bang Institutional Equities. The management expects volume growth to rebound gradually and has guided for double-digit topline growth and stable margins in FY25, it said.

Given the 7.2 per cent and 7.5 per cent topline CAGR over the last four years and ten years, respectively, our estimate of 11.5 per cent topline CAGR over the next two years is aggressive and yet earnings growth projection of about 12 per cent over the next two years remains modest, it added while maintaining an 'accumulate' rating with a target price of Rs 570.

Marico reported 3 per cent YoY volume/value growth in the domestic/standalone business, partly due to a decline in VAHO and Saffola edible oils said Kotak Institutional Equities. The company's thrust on portfolio diversification is encouraging; if executed well, it could aid valuation re-rating in the medium term, it said.

Management is eyeing DD topline growth and 10-13 per cent EPS growth inFY2025E, driven by a pickup in the core portfolio, direct reach expansion and 20 per cent growth in foods and premium personal care, Kotak added with a 'reduce' rating with a fair value of Rs 565 on the stock.