shares of Marico Limited, The National Stock Exchange was down nearly 4% in early deals on Wednesday, following the company’s business update for the March-ended quarter (Q4FY22). As per the update, demand conditions remain calm amid softening rural sentiments and rising commodity prices.
The company said a research by Nielsen showed that the volume of fast-moving consumer goods (FMCG) declined year-on-year (y-o-y) during January-February. This, with a higher base of 25% growth in domestic volumes in Q4FY21, has marginally increased in Q4FY22. Result: Revenue growth in Q4 of FY22 was limited to low single digits for the domestic business.
On the other hand, overseas business performed well in the last quarter with double-digit growth in constant currency terms. This means outperforming on a consolidated basis, revenue growth is expected to be in the high single digits.
Marico said the Saffola franchise has grown into the high teens in terms of value, with healthy growth in its food portfolio. “The continued growth in the food business is commendable. Foods portfolio must be clocked 500 crore in FY 2012, as per management’s expectation,” analysts at Dolat Capital Markets Pvt Ltd said in a note.
On the margins side, the company was expected to get some relief from the softening of copra prices. In fact, it has been played. Nevertheless, a jump in edible and crude oil prices amid the Russo-Ukraine war prompted the company to hike prices in the value-added hair oil and Saffola edible oil portfolio in the fourth quarter. As a result, gross margin is likely to remain flat year-over-year.
Dolat Capital expects Marico’s consolidated revenue growth of approximately 8% year-on-year in Q4FY22. “The increase in prices is likely to support gross margins. We expect EBITDA margin to be primarily on account of increase in A&P (advertising and promotional) expenses,” the brokerage said. EBITDA is earnings before interest, depreciation, tax and amortization.
Marico’s growth prospects certainly aren’t bad. Analysts at Motilal Oswal Financial Services expect double-digit sales CAGR in FY 2020-23. CAGR is the compound annual growth rate.
“This is likely to continue beyond FY 2013, driven by: the ongoing topline growth momentum in each of Marico’s core segments; Targets in the food portfolio with significantly higher growth rates; And this from 450 crores 500 crore target from its ‘Digital First’ range of products,” analysts at Motilal Oswal said in a report on April 5. “The much-needed diversification could lead to higher multiples than in the past.”
Hence, there is no demand for valuation of Marico’s stock. The shares trade at 41 times the estimated earnings of FY 2024.
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