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Marico Q2 Review: Analysts Cut FY22 Earnings Estimates But Upbeat On Long Term

Here’s what brokerages have to say about Marico's Q2 results:

Marico Ltd. health and beauty products are displayed on the shelf of a department store in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
Marico Ltd. health and beauty products are displayed on the shelf of a department store in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Analysts remained optimistic on Marico Ltd. for long term but cut earnings estimates for the ongoing fiscal to account for lower gross margin.

They, however, retained or raised FY23/24 EPS projections. Brokerages see positive growth outlook with market share gains in core brands, step-up in foods and digital-first brands and growing distribution network.

The maker of Parachute hair oil reported a sequential fall in profit and revenue in the quarter ended September, but met analyst estimates.

Marico continues to see input cost inflation, but expects raw material cost inflation to gradually abate leading to a sequential improvement in gross margin during the second half of FY22. It expects to achieve domestic volume growth of 8-10% and sustain gains in market share over the medium term.

Among brands, Parachute continues to lead the way. Saffola refined edible oil's performance was muted due to trade destocking in anticipation of a price correction and lower in-home consumption.

Marico, like its peer Hindustan Unilever Ltd., has flagged moderation in rural growth sequentially and would wait for the next few months for the trend to establish. But it said some degree of caution in the near-term growth outlook was warranted.

Shares of Marico declined 2% in early trade on Friday before paring the losses.

Of the 41 analysts tracking the company, 27 have a 'buy' rating, 11 recommend a 'hold' and three suggest a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 6.8%.

Here’s what brokerages have to say about Marico's Q2 results:

Dolat Capital

  • Maintains 'buy' with a target price of Rs 631, an upside potential of 12%.

  • Although Q2 results were in line with estimates, commodity prices continue to remain volatile. Hence, the brokerage has revised its FY22E earnings per share estimate by 3.7% to Rs 9.9.

  • Maintained its FY21 earnings per share estimate at 11.4% as the price hikes taken by Marico across its portfolio is expected to reflect in the near term and will be a major revenue driver.

  • The trend in copra prices has started to reverse with 11% sequential fall in prices.

  • In case of price reversal, we expect margins to retrace above 19% levels, especially post FY22E.

  • New launches in food and digital portfolio are gross margin accretive, which augurs well for the company.

Prabhudas Lilladher

  • Maintains 'hold' and hikes target price to Rs 544 from Rs 532 apiece.

  • The brokerage has slashed FY22 EPS estimates by 4.1% on input cost pressures and higher ad spends post second quarter of FY22, while FY23/24 EPS is expected to increase by 0.1%/1.9% as margins normalise.

  • Volume growth in both Saffola and Parachute expected to moderate to long term trajectory.

  • Expects sustained margin pressure and soft rural demand can provide a better entry point for long term gains.

  • Increased focus on go-to-markets expansion through chemist and food channel in urban and direct reach in rural augurs well for the company.

  • The brokerage expects sales compound annual growth rate of 14.6% over FY21-24. However, valuations of 46.5x/41.3x FY23/24 factors the positives.

  • Exponential growth witnessed in e-commerce has moderated while modern trade is witnessing encouraging growth.

Systemix

  • Maintains 'hold' with a target price of Rs 575, given the rich valuation of 46.6x FY23E EPS.

  • Cuts FY22 EPS estimates by 3.2% due to lower gross margins but maintains FY23E EPS.

  • Estimates Marico to deliver revenue/EPS compound annual growth rate of 14.3%/14.7% over FY21-23E with robust return ratios and cash flow generation.

  • With copra prices estimated to remain stable in the near term, the company has taken a tactical price cut on Parachute coconut oil prices to gain market share.

  • Key risks include slower-than-expected macro-economic recovery leading to weak demand which could result in down-trading, and a continued increase in raw material prices.

  • Benefits of higher advertising and promotional spends and cost measures would start accruing from fourth quarter FY22 onwards.

Emkay

  • Maintains 'buy' and raises target price to Rs 640 from Rs 630, an upside of 13.5%.

  • Stable growth outlook in core brands with market share gains, step-up in foods, digital-first brands, and growing distribution network provide a positive growth outlook overall.

  • Gross margins are expected to improve sequentially in Q3 and Q4. Operating margin improvement is expected to play out in Q4 on benefits from cost rationalisation. Earnings momentum should also see an improvement

  • Food and digital-first brands are expected to sustain robust growth momentum.

Opinion
Marico Q2 Results: Profit, Revenue Fall, But In Line With Estimates