
Shares of FMCG major Marico fell nearly 4 per cent in Thursday's trade as the September quarter business update by the hair oil maker disappointed investors. Analysts noted that the demand trends for the quarter were similar to that of June quarter -- weak -- in the backdrop of rising food prices, below-normal rainfall distribution and impeding the recovery in rural demand. Margin may expand for the quarter, they said adding that consumer trends may improve only in the second half of FY24.
"Marico’s commentary on the Q2 top line sounded weaker than our expectations, while that on profitability was in-line," said Emkay Global as it builds in 1 per cent drop in consolidated revenue in Q2 against an earlier expectation of 2 per cent growth.
Emkay Global said lower growth in the September quarter was largely due to the weak show in domestic edible oil, wherein Marico saw a low single-digit volume growth against its estimate of a high single-digit growth.
"Overall domestic revenue is likely to decline 2 per cent, with volume growth to come in at 2.5 per cent. We see 11 per cent constant currency growth in Marico’s international business, while our reported rupee growth estimate is 3 per cent. Consolidated Ebitda margin would expand 220 basis points YoY to 19.5 per cent. We see Ebitda/earnings growth at 12 per cent/13 per cent, respectively," the brokerage said.
The stock fell 4.22 per cent to hit a low of Rs 546.40 on BSE. The FMCG company will report its quarterly earnings on October 30.
Nuvama noted that key inputs such as prices of copra and edible oil stayed in a favourable zone while crude derivatives remained firm with an upward bias. "Accordingly, we expect consolidated gross margin/Ebitda margin to expand 317 basis points/225 basis points YoY. Meanwhile, food and premium personal care held steady. A&P spends continued to trend upward. Maintain ‘HOLD’ with a target of Rs 606.
Emkay Global has a target of Rs 585 on the stock. Nuvama sees the stock at Rs 606. Motilal Oswal Securities, which has a target of Rs 690 on the stock, said the FMCG firm has clocked a 9.1 per cent earning CAGR over FY18-23 and may achieve a similar growth over FY24-25, led by volume growth, improvement in brand image of core franchises, higher growth in the food portfolio and premium personal care segment. It finds the stock valuations attractive.