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Marico’s Q2 is decent but near-term concerns remain for the stock

Marico's revenues saw good year-on-year growth in Q2, although Ebitda margins fell. Going ahead, rural demand conditions and raw material inflation remain key factors to watch out for.

October 29, 2021 / 01:54 PM IST
 
 
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Marico Ltd’s September quarter results (Q2FY22) were not bad, but they weren’t particularly impressive either. Some analysts have said the performance was in line with their estimates.

Marico’s consolidated revenues in Q2 rose almost 22 percent year-on-year to Rs 2,419 crore, though cost pressures meant EBITDA (earnings before, interest, tax, depreciation and amortization) increased at a slower pace of 8.7 percent to Rs 423 crore. EBITDA margins have contracted by 207 basis points (bps) to 17.5 percent. One basis point is one-hundredth of a percentage point. EBITDA margin is down sequentially as well.

Margin outlook

What is more, analysts are not particularly upbeat on the margin outlook. “Marico’s earnings progression for the balance part of FY22E is likely to disappoint versus initial expectations,” said JM Financial Institutional Securities Ltd analysts. At the time of announcing its Q2 results, Marico said, “We expect gross margin to improve sequentially in Q3 and Q4. However, we expect an improvement in operating margins to play out only in Q4, given that ad spends will rise from Q3 itself and a large part of the benefits of a second round of cost rationalization measures will start accruing in Q4.”