Marico Ltd ended FY23 on a strong note showing better-than-expected margin performance in the March quarter (Q4FY23), which pushed shares up to 9% in morning trade on Monday.
Copra prices moderated the company’s raw material basket, contributing 47.4% to annualized gross margin expansion of 294 basis points (bps). This beat Kotak Institutional Equities’ estimate of 45.8%.
The Parachute Coconut Oil segment witnessed a growth of 9% after five quarters of muted performance driven by copra prices and consumer price stability. The value-added hair oil (VAHO) portfolio also impressed, growing 13% in value terms, outperforming Dabur India Ltd (-3%) and Bajaj Consumer Ltd (10%). However, Saffola Edible Oils saw a mid-single digit decline in volumes.
Marico’s domestic business achieved 5% volume growth, led by price cuts in Parachute and Saffola, while revenue grew 2% year-on-year to Rs. 1683 crores. International business flourished in Q4, with 16% constant currency growth.
What’s more, the outlook is promising. Marico expects volume-based growth in the domestic business. In addition, the commodity cost environment is encouraging. Furthermore, Marico is confident of maintaining the double digit growth momentum in FY24. FY24 sees an expansion of 200-250bps in gross margin and over 100bps in operating margin as ad spend is set to increase. In FY23, the gross margin stood at 45.2% and the operating margin at 18.5%.
“The margin outlook is strong, led by benign input prices, which should allow for investment in a higher growth portfolio,” analysts at Jefferies said in a report on May 7.
Marico Foods is also seeing growth in new categories such as personal care and digital-first brands. “The much-anticipated diversification into foodservice and digital-first brands is gathering pace. If sustained, this could lead to higher multiples for Marico than in the past, analysts at Motilal Oswal Financial Services said in a report on May 6.
Marico stock is trading at 40 times taking into account the broking firm’s earnings estimates for FY25. Marico shares are down only 4% from their 52-week high after taking into account today’s rally. 554.35 per share was seen in September.
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