Marico Q4 Review: Most Analysts Say ‘Buy’ After Steady Earnings; Shares Fall

Most analysts reiterated their ‘buy' calls on Marico Ltd. after the fourth quarter, expecting its earnings to grow in the ongoing fiscal on expansion of foods portfolio and digital-first brands. Still, the stock fell.

The maker of Parachute hair oil and Saffola edible oil saw its domestic business (75% of top line) grow 5.1% year-on-year in the quarter ended March, with 1% underlying volume growth (on a high base of 25%). That was on the back of focused execution and market share gains even as persistent input cost pressures and tepid consumer sentiment weighed.

Marico reported an expansion in operating margin, unlike other consumer goods makers that saw a contraction.

The largest producer of coconut oil benefitted from a deflation in copra, comprising 40-50% of its raw material cost, nullifying the inflation in other basket.

Marico, according to analysts, will continue to be an outlier within the FMCG segment to sustain margin in such a challenging time.

Shares of the company fell as much as 3.99% but pared some of the losses to trade 2.5% down as of 10:40 a.m. on Friday. Of the 39 analysts tracking the company, 32 maintain a ‘buy', four suggest a ‘hold' and three recommend a ‘sell', according to Bloomberg data. The average of the 12-month price target compiled by Bloomberg implies a 13.2% upside.

Here's what brokerages have to say about Marico's Q4 FY22 earnings.

HDFC Securities

• Maintains ‘add' with a target price of Rs 550 apiece.

• Near-term growth will be challenging.

• However, Marico's thrust to drive both core brands along with new initiatives (food, direct-to-consumer) will sustain steady volume growth.

• In Parachute, the company has taken price cuts to protect itself from market share loss during times of copra price correction.

• Copra prices will not be impacted by the recent palm oil export ban, given the limited correlation of utility to other oils.

Motilal Oswal

• Maintains ‘buy' at a target price of Rs 600 apiece.

• Earnings growth prospects are healthy at 18% CAGR over FY22–24E and ROEs are healthy at 40% level.

• Its earnings growth provides a safe haven in an uncertain environment for staples peers.

• The much-needed diversification is picking up momentum in foods and digital-first brands. If sustained, this could lead to higher multiples for Marico compared to the past.

• Given its inexpensive valuation of 39x FY24E, the brokerage remains positive on Marico from a one-year perspective, especially given its high-teens earnings growth potential in FY23E, which is much higher than peers.

• Top line and earnings growth have been healthy over the past 10 years, with 11%/15%/16% CAGR in top line/Ebitda/PAT, respectively.

Yes Securities

• Maintains ‘buy' at a target price of Rs 603 apiece.

• While management indicated that benefits of moderation in input costs like copra will be passed on to consumers, margins have already started improving despite an increase in ad spends led by tight control.

• It gets comfort from the solid execution and aggressive brand investment which should support medium‐term growth aspirations.

• H2 FY23 is when the earnings trajectory should start picking up well.

• The management's focus on expanding foods portfolio and digital-first brands, aggressive expansion across trade channels is encouraging.

• Expects the company to deliver one of the highest earnings growths in the staples pack.

IDBI Capital

• Maintains ‘buy' at a target price of Rs 610, implying a potential upside of 17%.

• Food category has reached Rs 450-500-crore mark, which is a positive.

• Cuts valuation multiple to 45x for FY23 E due to rise in cost of capital assumption.