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Shares of Marico Ltd. were down about 4% on the National Stock Exchange in opening deals on Wednesday, following the company's business update for the March-ended quarter (Q4FY22). As per the update, demand conditions remain muted amid subdued rural sentiment and rising prices of commodities.
The company said that a Nielsen research showed that fast-moving consumer goods (FMCG) volumes during January-February declined year-on-year (y-o-y). This, coupled with a high base of 25% growth in domestic volumes in Q4FY21, has led to marginal growth in Q4FY22. The upshot: revenue growth in Q4FY22 was restricted to low single digits for the domestic business.
On the other hand, overseas business performed well last quarter with double-digit growth in constant currency terms. This means a better show on a consolidated basis, with revenue growth expected to be in the high single digits.
The Saffola franchise grew in high teens in value terms, with healthy growth in its foods portfolio, said Marico. “Continuous growth in foods business is commendable. Foods portfolio must have clocked ₹500 crore in FY22, as per management expectation," point out analysts from Dolat Capital Market Pvt. Ltd in a note.
Speaking of margins, moderating prices of copra were expected to offer some cushion to the company. Indeed, that has played out. Even so, the surge in edible and crude oil prices amid the Russia-Ukraine war prompted the company to take price hikes in Q4 in value added hair oils and Saffola edible oil portfolios. Consequently, gross margins are likely to remain flattish y-o-y.
Dolat Capital expects Marico's consolidated revenue growth at about 8% year-on-year in Q4FY22. “Price increases are likely to support gross margins. We expect flattish Ebitda margins mainly due to increase in A&P (advertisement and promotion) spends," said the brokerage. Ebitda is earnings before interest, depreciation, tax and amortisation.
To be sure, Marico’s growth prospects are not bad. Analysts at Motilal Oswal Financial Services expect double-digit sales CAGR over FY2020-23. CAGR is compounded annual growth rate.
“This is likely to sustain beyond FY23 as well, propelled by: ongoing topline growth momentum in each of Marico's core segments; significantly higher growth rates as well as targets in the foods portfolio; and the ₹450 crore to ₹500 crore targeted from its 'digital first' range of products," said analysts at Motilal Oswal in a report on 5 April. “The much-needed diversification could lead to higher multiples than in the past."
As such, valuations of the Marico stock are not demanding. The shares trade at 41 times estimated earnings financial year 2024.
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