Marico’s food business potential makes stock outlook appetizing
PremiumMarico is looking to garner revenues worth ₹450-500 crore from the Saffola foods portfolio in FY22
Marico Ltd’s shares jumped more than 5% on Tuesday on the National Stock Exchange, touching a new 52-week high.
There is excitement around the company’s food business prospects. Marico is looking to garner revenues worth ₹450-500 crore from the Saffola foods portfolio this financial year (FY22) and ₹850 crore by FY24. Note that the company’s foods revenue soared 134% year-on-year in the March quarter and surpassed ₹300 crore in FY21.
“In the past, Marico’s relative valuations to peers have improved when non-Parachute brands deliver strong growth. We expect this over FY21-23 with the Saffola foods expansion," said analysts from Credit Suisse Securities (India) Pvt. Ltd in a report on 28 June. The broker’s base case for Saffola foods revenues by FY24 is around ₹740 crore. “However, there is a path to reach the management target of ₹850 crore, with one more category entry, and faster ramp-up in honey and soya chunks," the Credit Suisse analysts said.
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Additionally, there is optimism on Marico’s margin outlook as the worst is probably over. Analysts said the softening of copra prices from recent highs would boost margin performance, going ahead. Copra is a key raw material for Marico. Recall that in the March quarter, Marico’s consolidated Ebitda margin fell 300 basis points to 15.9%, the lowest in several quarters. Ebitda is earnings before interest, taxes, depreciation and amortization. One basis point is 0.01%.
Meanwhile, the second covid wave may adversely impact the June quarter financials to some extent. However, as the pace of vaccinations pick up, the scenario is expected to improve. Investors should watch the domestic business volume performance when June quarter numbers are announced. In the March quarter, Marico’s India volume growth was robust at 25% helped by a favourable base.
“Ongoing volume growth momentum in each of its core segments and significantly high growth as well as targets in the foods portfolio are encouraging for a business that had only around 6% sales CAGR over FY15–20 – before reporting double-digit growth in FY21," said Motilal Oswal Financial Services Ltd’s analysts in their March quarter results review report. CAGR is compound annual growth rate.
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To be sure, Marico’s shares have run up quite a bit. So far this calendar year, the stock has appreciated by 34% vis-à-vis a nearly 14% gain in the Nifty 100 index. The stock currently trades at around 46 times estimated earnings for financial year 2023, which compares with 46 times for Dabur India Ltd and 42 times for Britannia Industries Ltd.
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