Parachute oil maker Marico is likely to see better than expected improvement in margins, albeit at a weaker than expected sales growth. The company seems to have prioritised margin optimisation over growing sales volume, Nomura said in a recent research note. “GPM to be much better at c.50% (+500bp y-y) vs our forecast of 47% (+200bp y-y). Marico invested back some of its GPM gains into higher ad spends. However, OPM still sees robust expansion to 23% (+250bp y-y), better than our forecast of 22% (+150bp y-y),” the note said. The brokerage has maintained a ‘Neutral’ rating on Marico stock, with a target price of Rs 560, which implies a 6% upside over its current price of Rs 527.
Marico’s consolidated revenue growth fell to low-single digits during Q1FY24 but analysts at Nomura expect GPM to improve in Q1FY24 on vegetable oil prices softening, and copra prices remaining range bound. OPM is also expected to improve and drive double-digit PAT growth in Q1FY24. Marico stock has fallen 3% in the last one month but has risen over 5% in the past one year. Marico share price jumped 2% today to Rs 527.7. The company’s market capitalisation stands at Rs 67,770 crore.
Talking about the category growth trends, both parachute coconut oil (PCO) and Saffola edible oil witnessed a decline in volume due to increased competitive intensity among unorganized players and significant channel destocking due to sharp moderation in vegetable oil prices, respectively. Whereas, value added hair oil (VAHO) volume growth was flat and other food businesses and personal premium care business (including D2C) reported strong run-rates and steady demand in Q1FY24.
Stock Call: Marico
Neutral | CMP: Rs 527 | Target Price: Rs 560 | Upside: 6.2%
With a ‘neutral’ stock rating, Marico remains optimistic about their target price of Rs 560. “We maintain our Neutral rating given the anaemic volume growth and near-term sharp volatility in input prices”, said Nomura.