Marico Q3 Review: Shares Gain As Analysts Raise Target Price On Improving Volume Growth
Analysts expect improving demand conditions and softening of commodity prices to support volume growth in the coming quarters.
Shares of Marico Ltd. gained after most analysts raised their target price on the company, citing better margins and volume growth in the coming quarters now that the worst of input inflation is over.
The maker of Parachute hair oil and Saffola edible oil reported a 9% rise in net profit over the previous quarter to Rs 328 crore in the October-December period, in line with analyst estimates. Operating profit rose 5% to Rs 456 crore, compared to a forecast of Rs 467.86 crore.
Revenue was down 1% sequentially driven by Parachute and value-added hair oils, which posted a 6% and 3% decline in value, respectively, due to weak rural demand and sluggishness in mass personal care. Parachute volumes edged up 2%, though. Saffola franchise revenue grew 10% year-on-year, and volume grew in the low teens, led by a reduction in price.
Its revenue, however, were up 2.6% over the previous year while volumes increased 4%.
Analysts expect improving demand conditions and a softening of commodity prices to support the volume growth of Parachute and value-added hair oils in the fourth quarter. Strong growth in international business should also aid growth rates.
Of the 42 analysts tracking the company, 27 maintain a ‘buy’, 11 suggest a ‘hold’ and four recommend 'sell', according to Bloomberg data. The average of the 12-month target prices implies an upside of 15.1%.
Shares of the company gained 2.21% to Rs 504.80 apiece as of 9:28 a.m., while the benchmark Nifty 50 eased 0.52%.
Here’s what brokerages have to say about Marico’s Q3 FY23 earnings.
Nuvama Institutional Equities
Maintains a 'hold' rating with a target price of Rs 572 per share, implying a potential upside of 15.7%.
While easing raw material inflation is positive, prominent green shoots in rural areas are eagerly awaited.
Digital-first portfolios are scaling up in line with expectations.
Margins will remain steady with an upward bias from hereon as copra remains in a soft zone, but volatile vegetable oil prices remain a concern.
Likes Marico’s focus on improving volumes over the long term and market share gains without compromising on margin.
The company needs to get much more aggressive on innovation and push its products across channels.
Appreciation of the rupee against the Egyptian pound, Bangladeshi currency, and other international currencies puts the growth in revenues and profits at risk.
Dolat Capital
Maintains an 'accumulate' rating with a target price of Rs 558 apiece, implying a potential upside of 13%.
Marico’s operational performance was broadly in line with estimates.
The prices have remained firm in the early part of Q4 and, hence, it would give an advantage to Marico over the unorganised players.
Due to improving demand conditions, we believe that the company will achieve volume growth of 5–7% in the medium term.
Furthermore, with rice barn, HDPE prices are already reasonable, and LLP prices are expected to fall over time, so the company believes it can achieve 19%+ margins over the investment horizon.
New launches in foods and the digital portfolio are gross margin accretive, which augurs well for the company.
Motilal Oswal
Maintains a 'buy' rating with a target price of Rs 580 per share, implying a potential upside of 17%.
The outlook on gross and Ebitda margins is gradually improving.
There are signs of a better demand environment for staples, which should improve Marico's earnings growth prospects in Q4 and beyond.
The company’s earnings growth prospects are healthy, with expectations of a 14–15% CAGR over FY22–24E and a RoE of over 40%.
The much-needed diversification is gathering momentum in the food industry and with digital-first brands. If sustained, this can lead to higher multiples for Marico as compared to the past.
ICICI Direct
Maintains a 'hold' rating with a target price of Rs 555 apiece, implying a potential upside of 12%.
Foods, digital brands, and edible oil are growing at a faster pace, which is likely to offset the slower growth in the hair oil business.
The company is likely to post mid-single-digit volume growth until these high-growth businesses scale up.
Volatility in key raw material prices derails pricing and consumer demand.
High agricultural commodity prices may boost rural growth and, in turn, volumes.
Marico’s share price has given a 66% return in the last five years, from Rs 297 in February 2018 to Rs 494 in February 2023.