Low single-digit volume growth, weakness in rural markets drag Marico down

In a strong market, the share price of FMCG firm Marico dropped almost 1.5 percent in trade today after the company informed that its India business posted low single-digit volume growth in the second quarter of the ongoing fiscal.

At 3 PM, the company was quoting Rs 522 apiece on the National Stock Exchange, extending its drop to the fourth straight session.

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In an exchange filing, the company said, “With retail inflation holding firm, downtrading in rural (areas) was still prevalent during the quarter. Urban and premium discretionary segments continued to fare better.”

The company’s flagship Parachute coconut oil recorded a low single-digit volume decline, although the brand witnessed improving trends towards the end of the quarter.

“Consolidated revenue in the quarter grew in low single digits on a year-on-year basis,” it added.

The company passed on the benefit of falling input prices (copra and edible oil) to protect volumes and market share, even while consuming relatively higher-cost inventory during the quarter.

“Some of the geographies witnessed sharp currency depreciation, which is also expected to have some bearing on profitability. As a result, gross margin is expected to contract sequentially but should end up higher on a year-on-year basis,” according to the filing.

Goldman Sachs has a Buy call on the stock with a target price of Rs 620. “Key risks include weakness in rural consumption and slowdown in D2C consumer brands. Meanwhile, international business will post double-digit constant currency growth,” the global brokerage said.

CLSA has an Underperform call on the stock with a target of Rs 540 per share. The company’s update on EBITDA margin being flat is a disappointment, but India revenue growth will likely be helped by 8 percent estimated volume growth in Saffola Edible Oil, it said.

Analysts at Motilal Oswal Financial Services are bullish on the stock. They have a Buy call with a target price of Rs 620. “The management expects consumption to be better in H2FY23 on account of a reasonably healthy rainfall, moderation in commodity costs, and cooling off of retail inflation. Higher crop realization and a festive season should boost demand,” the domestic brokerage said.

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