Shares of Marico Ltd. fell the most in at least a year after second-quarter profit missed estimates.
“The first-half ended on a fairly positive note despite the operating environment bringing little cheer," said Managing Director and Chief Executive Officer Saugata Gupta.
Shares of Marico declined as much as 7.4% intraday to Rs 499.1 apiece. It was the worst performer among its peers. It closed 6.3% lower at Rs 504.9 apiece.
Of the 43 analysts tracking the company, 27 maintain a 'buy', 13 suggest a 'hold' and three recommend a 'sell'. The 12-month consensus price target implies a downside of 8.1%.
Here's what brokerages made of Marico's Q2:
Motilal Oswal
Maintains 'buy' rating with a target price of Rs 620, implying a potential upside of 15%.
In line set of numbers in its Q2 result. Management guided for mid-single digit domestic volume growth in H2FY23 v/s -5% and 3% in Q1 and Q2, respectively.
Material cost outlook is likely to get better in subsequent quarters. We expect better earnings growth prospects in FY24.
Due to the more gradual-than-expected recovery in volumes and some price corrections taken to boost growth, we have cut our FY23E EPS by 5% but there is no material change in our FY24E EPS.
Company’s earnings growth prospects are nevertheless healthy with ~16% CAGR likely over FY22-24E and an RoE of over 40%.
The much-needed diversification is gathering momentum in the foods and digital-first brands. If sustained, this can lead to higher multiples for Marico as compared to the past.
ICICI Securities
Maintains 'buy' rating with a target price of Rs 570, implying a potential upside of 5.7%.
Overall performance was underwhelming with weak trajectory in Parachute and value-added hair oil.
Overall volumes were up +3% YoY (+7% 3-year CAGR) with good performance in Saffola portfolio (edible oils recovered driven by pricing interventions).
It highlighted that the macro continues to be tough with a starker divergence between rural and urban growths. Market shares gains in key portfolio and a resilient international portfolio are key positives.
There was improvement in margins (YoY) with favourable input cost and cost-control measures while highcost inventory weighed sequentially.
Marico should also start seeing the benefits of distribution expansion in both urban (chemist channel) and rural.
Healthy Foods portfolio continues to trend well and is likely to provide another leg to growth (Rs 850-1,000 crore in FY24).
The current weak macro, tough operating conditions for edible oil and a not-so-supportive macro for coconut oil and hair oil are near-term concerns.
Success in foods and D2C portfolio is exciting. We stay believers – a conducive raw material environment will unveil the results of improved execution.
Axis Capital
Maintains 'reduce' rating, cuts target price from Rs 520 to Rs 510, implying a potential downside of 4%.
Q2 print was in line albeit unexciting.
Saffola franchise and premium personal care/D2C performed well while Parachute and value-added hair oil continue to drag overall growth.Volatility in edible oil prices and category headwinds in value-added hair oil remain key near-term challenges.
Valuation in this context at 48x FY24E EPS is fully priced in.
Nirmal Bang
Maintains 'accumulate' rating with a target price of Rs 580, implying a potential upside of 7.6%.
International business maintained its strong momentum, with 11% YoY constant currency growth despite global macro-economic and geo-political uncertainties. Price cuts, consumption of relatively higher cost inventory and sharp currency depreciation affected profitability in Q2 even as key inputs trended lower.
Marico has executed multiple price cuts in Parachute (~8%) and Saffola Oils (~18% from the peak levels) till date to pass on oil price correction, which we believe will weigh on revenue growth and margins in the near term till volume rebounds in a robust manner.
Barring the recent quarters, MRCO’s core portfolio has delivered a strong performance and the company continues to make efforts towards meeting its medium-term growth aspirations.
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