Marico Falls The Most In A Year On Q2 Miss

Shares of Marico Ltd. fell the most in at least a year after second-quarter profit missed estimates.

Net profit of the maker of Parachute hair oil and Saffola cooking oil fell 3% over the previous year to Rs 301 crore in the quarter ended September, according to the company's exchange filing. That compares with the Rs 327.4-crore consensus estimate of analysts tracked by Bloomberg.

Marico Q2 Highlights (YoY)

• Revenue was up 3% at Rs 2,496 crore, against the Rs 2,538.7 crore forecast.

• Operating profit rose 2% to Rs 433 crore, compared with the estimated Rs 453.8 crore.

• Margins stood at 17.3% versus 17.5%. Analysts had pegged it at 17.9%. However, it contracted sequentially from 20.6%.

• Advertising and promotion spend rose 9.8% to Rs 213 crore.

“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.