Marico jumps 6% to hit fresh 52-week high; ICICI Securities upgrades stock to ‘buy’

Marico gained 5.9 percent on October 3, jumping to a new 52-week high of Rs 595. ICICI Securities has upgraded the consumer goods company stock to “buy” from “add” and revised the target price to Rs 670 from Rs 610, an upside of 19 percent.

The brokerage firm upgraded the rating based on a slew of factors. The volume growth in Parachute Coconut Oil is expected to improve, revenue from the food segment is likely to be more than that from the edible oil business and the focus on D2C brands would be on profitably scaling up, analysts at ICICI Securities said in an October 1 note.

The FMCG player is eyeing medium-term volume growth of around 8 percent, which, ICICI Securities flagged as a positive, saying it indicates the ambition to grow faster on a larger base.

Hair oil for a shinier future

Over the past decade, Marico’s Parachute Coconut Oil has gained significant market share over unbranded players. The share of unbranded players has fallen to around 30 percent in FY23 from 50 percent in FY04.

With copra (dried coconut) prices stabilising and the prospective recovery in rural consumption, volume growth is expected to see a gradual improvement.

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In the value-added hair oil (VAHO) segment, the competition among the bottom-of-pyramid sector has likely bottomed out.

The premium hair oil segment has been underperforming as consumers downgraded to value price points on inflation worries. However, the competitive intensity has normalised.

“Hence, with incremental focus on premiumisation and recovery in rural, value growth in VAHO is expected to gradually improve and deliver double digit value growth in the medium term,” said ICICI Securities.

Food for growth

As a result of its pricing, distribution of Saffola edible oil has been relegated to modern trade, e-commerce and top-10 cities.

The shift in marketing tonality will move Saffola’s target audience to people attempting to maintain a healthier lifestyle from being an edible oil meant for consumers with a heart ailment, helping drive deeper brand penetration.

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Marico plans to grow its food portfolio at 15-20 percent CAGR during FY 23-25. “This may also help portfolio diversification and reduce volatility in operating profit margins due to cyclicality in commodity prices,” ICICI Securities said.

“Gross margin in the food business is higher than Saffola (oil). We reckon, at the scale of revenue of Rs 200 crore (in foods), it is feasible to break-even.”

In a report on the consumer goods sector, Emkay maintained a “hold” rating on Marico. The brokerage offered a target price of Rs 565, with a downside of 3 percent from the CMP at the time of Rs 585.

At 12.34 pm, the stock was trading at Rs 579.05 on NSE, up 3.1 percent from the previous close.

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