Marico fails to woo D-Street with strong operational performance in Q2; what should investors do?

Marico shares were under pressure on Tuesday after brokerage JPMorgan reduced its price target by five per cent for the consumer products maker's stock following the Mumbai-based company's operationally strong quarterly performance though its domestic sales declined 3.4 per cent. The Marico stock weakened by as much as Rs 7.1, or 1.3 per cent, to Rs 525 apiece on BSE. 

Analysts at the brokerage, which maintained its 'overweight' rating on the stock after the company's earnings announcement, pointed out that a continued decline in revenue at Marico's domestic business may upset some investors. 

After market hours on Monday, Marico staged an operationally strong performance for the July-September period, though some analysts said its low-single-digit percentage growth in domestic volumes was weak. Marico registered domestic volume growth of three per cent for the quarter under review. 

The company's management exuded confidence about the second half of the financial year with the expectation of a higher margin. It maintained its revenue growth guidance for the year unchanged at 13-15 per cent.

Marico said the demand trends were in line with the preceding quarter and a gradual recovery was likely ahead. 

Marico Q2 results: Key highlights  

Marico reported a 17.3 per cent year-on-year rise in consolidated net profit to Rs 353 crore for the quarter ended September 30, exceeding analysts' expectations. Its revenue declined about one per cent to Rs 2,476 crore for the quarter under review, impacted by the fall in domestic sales, according to a regulatory filing. 

According to Zee Business research, Marico was estimated to report a quarterly net profit of Rs 345 crore and revenue of Rs 2,479 crore. 

The margin of Mumbai-headquartered FMCG major, whose popular brands include Parachute, Nihar, Saffola, Livon and Set Wet, improved by 280 basis points on a year-on-year basis to 20.1 per cent, better than the Zee Business analysts' estimate of 19.5 per cent. 

The Parachute coconut oil contributes 31 per cent to the company's domestic revenue.

Marico reported about 15 per cent growth in earnings before interest, taxes, depreciation and amortisation (EBITDA) to Rs 497 crore. According to Zee Business research, the EBITDA was estimated to be at Rs 484 crore. 

Marico’s results came a week after Hindustan Unilever and ITC said competition from smaller rivals had risen as lower prices of ingredients had created a more level playing field.

EDITOR'S TAKE | A strong operational performance 

Zee Business Managing Editor Anil Singhvi pointed out that Marico's gross margin hit a six-year high and the management's commentary for the October-March period was strong. 

The Marico board declared a dividend of Rs 3 per share, translating into a 300 per cent payout given the face value of Re 1 per share. 

What analysts say about Marico after the Parachute coconut oil maker's Q2 earnings

According to JPMorgan, whose target implies a 9.9 per cent upside in the stock, the FMCG company's growth portfolio keeps seeing strong traction, and revenue growth should turn positive in the fiscal second half.  

Zee Business analyst Varun Dubey recommends buying Marico shares for a target of Rs 553 with a stop loss at Rs 525.

With inputs from Reuters

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