Marico’s consolidated revenue declines in Q3; no sign of rural recovery, low input cost to support margins

Shares of Marico will be in focus as the FMCG major said that the firm’s consolidated revenue for the quarter ended December has declined in low single-digits on a year-on-year basis in its Q3 business update.

Copra and edible oil prices remained at lower levels, and crude derivatives also exhibited some downward bias, thereby leading to robust gross margin expansion on a year-on-year basis, while Marico expects low double-digit operating profit growth on the back of a healthy expansion in operating margin, thereby staying on track to deliver on the margin guidance for the full year.

The demand scenario saw no rural recovery while urban markets remained steady. Domestic volumes grew in low single digits on a YoY basis, with a slight improvement in the core portfolio on a quarter-on-quarter basis. The international business delivered mid-single-digit constant currency growth amidst transient macro headwinds in the Bangladesh market.

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In a filing with the exchanges, Marico said, “We remain optimistic of a gradual uptick in consumption trends over the course of the next calendar year on the back of improving macro-economic indicators, continued government spending and conducive consumer pricing across categories in response to a benign input cost environment.”

Morgan Stanley maintained its ‘Equal Weight’ call on the FMCG player, as the international brokerage noted that the quarter was weak, with the rural lag continuing. The management expected a gradual recovery in 2024, but margin improvement will largely be supported by low RM costs.

Despite noting the weak volume recovery, Macquarie retained its ‘Outperform’ call on Marico, with a target price of Rs 610 per share. The brokerage expected a sales decline of one percent but an EBITDA growth of ten percent in Q3FY24. The sequential improvement in the core portfolio volume growth trajectory was encouraging.

On January 5, Marico shares settled lower by 1.44 percent on the NSE, at Rs 545.8 apiece. Over the past year, shares of the company have eked out gains of around six percent, while the frontline index, Nifty 50 has surged more than 20 percent in comparison.

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