Marico shares slump as analysts stare at FMCG major's shrinking revenue

Marico shares suffered sharp losses on Thursday after the company flagged weakness in rural demand owing to reasons such as weak rainfall and sticky food inflation, and said its revenue dipped marginally on a year-on-year basis in the September quarter. The Marico stock fell by as much as Rs 26.6, or 4.7 per cent, to Rs 543.9 apiece in intraday trade on BSE. However, the management of Mumbai-based Marico—whose popular products include Parachute coconut oil—added that it hoped demand in the rural economy to improve in the second half of the current financial year. 

In a business update ahead of the release of its quarterly results, Marico said it expects the six-month period till March 2024 to see improvement in global as well as domestic demand. "During the quarter, demand trends largely mirrored the trends observed in the preceding quarter. Instances of rising food prices and below-normal rainfall distribution in some regions seemed to impede the anticipated recovery in rural demand," Marico said. 

"Consumption trends, particularly in rural, are expected to improve in H2 owing to retail inflation levels staying within the RBI’s target range, hike in MSPs, healthy sowing season, easing liquidity pressures and government spending," it said.

The company said its domestic volumes grew in low-single digits on a year-on-year basis, "with low single-digit volume growth in Parachute Coconut Oil and Saffola Edible Oils, and low single-digit value growth" in value-added hair oils. Marico said it continued to witness healthy trends in offtakes, market share and penetration across key franchises.

"Consolidated revenue was marginally lower on a year-on-year basis, dragged by pricing corrections in key domestic portfolios over the last 12 months, which will progressively come into the base going ahead. Moreover, currency depreciation in some of the overseas markets had an adverse effect on the reported rupee growth in the international business," it added. 

The company's international business delivered double-digit growth in constant currency terms amid a volatile global operating environment, according to the statement. 

What analysts make of Marico's business update

Macquarie maintained an 'outperform' rating on Marico with a price target of Rs 625 after the business update. The brokerage said Marico's pre-earnings commentary on volume growth was weak, as the FMCG company pegged low single-digit volume growth on account of a weak rural recovery.

There is moderation from the guidance of volume growth improving in the July-September period from three-odd per cent levels seen in the previous quarter, according to the brokerage, whose target suggests an upside of 9.6 per cent from the previous close.  

Analysts at Macquarie also pointed out that the Marico management's commentary on EBITDA growth was weaker than expected.

Zee Business analyst Ashish Chaturvedi has a short-term 'buy' call on Marico with a target of Rs 585 with a stop loss at Rs 565.

Here's a glance at Marico's performance in the June quarter

Marico staged a strong operational performance in the first three months of the current financial year. The company reported a six per cent jump in net profit to Rs 436 crore for the quarter ended September 30, beating Street estimates, according to a regulatory filing. 

Its revenue, however, declined about three per cent to Rs 2,477 crore, and margin improved by 260 basis points to 23.2 per cent. 

According to Zee Business research, the company's quarterly net profit was estimated at Rs 407 crore, revenue at Rs 2,593 crore and margin at 22 per cent.   

Marico shares: Past performance

Marico shares have grown 7.7 per cent so far in 2023, in line with a 7.5 per cent rise in the headline Nifty50 index. 

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