Despite being in line with analyst forecasts, Marico's Q4 FY23 business update, which was released in an exchange filing on April 3, has been relatively subdued. The company reported a low single-digit growth in consolidated revenue on a year-on-year basis for the quarter.
The management of Marico expects that the relaxation of commodity inflation will benefit rural markets, but they anticipate a more noticeable and persistent recovery in FMCG demand in the upcoming quarters.
"Demand recovery is based on a variety of improving macro indicators, a healthy monsoon season will be critical for the same to materialise," the exchange filing noted.
Marico's India business witnessed some improvement in year-on-year volume growth versus preceding quarters and stayed in the mid-single digit zone. As per Nomura's estimates, domestic volume growth will come in at 5 percent compared to 4 percent in Q3 and 3 percent in Q2.
Parachute Coconut Oil posted strong high single-digit volume growth in the quarter gone by, aided by stable consumer pricing, the company said, adding that Value Added Hair Oils (VAHO) touched double-digit value growth.
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Meanwhile, category growth consolidated on a low base amidst the prevailing muted sentiment in rural and mass personal care categories.
Saffola Oils remained stable sequentially but dipped on a year on-year basis owing to a high absolute volume base. Saffola Foods continued to scale up well and premium personal care also grew in double digits.
Marico's rural contribution stands in mid-30s because of its food and Saffola business.
Margin trajectory
Among key inputs, copra prices remained steady and edible oils resumed a downtrend, while crude derivatives remained firm. Nomura estimates 100 basis points YoY improvement in operating margins to 17 percent, but a fall of 150 bps QoQ.
"We believe ad spends stepped-up in Q4 (to normalise back to pre Covid levels), as Marico resumed its brand building exercise to support sales and new product launches," Nomura said.
It has a Neutral rating on the stock, with a target of Rs 565.
As per Trendlyne, Marico has an average target of Rs 575.50. The consensus estimate represents an upside of 19.97 percent from the last closing price of Rs 479.70.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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