Marico shares tank 3%, reports lower consolidated revenue; MS, Macquarie bullish

Shares of Marico slipped 3.2 percent in early trade on October 5 to an intraday low of Rs 552.45 apiece. In its second fiscal quarter review, the FMCG player reported that its consolidated revenue was marginally lower on a year-on-year basis, dragged by pricing corrections in key domestic portfolios over the last 12 months.

Consumption trends, particularly in rural areas, are expected to improve in H2 owing to retail inflation levels staying within RBI’s target range, hike in MSPs, healthy sowing season, easing liquidity pressures, and government spending, said Marico in a filing with the exchanges.

However, the FMCG major’s international business delivered double-digit constant currency growth, with the currency depreciation in some of the overseas markets having an adverse effect on the reported INR growth in the international business.

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Marico expects to see robust gross margin expansion on a year-on-year basis. “We expect to maintain an improving trend across key performance parameters in H2, supported by a gradual pickup in volume and topline growth in the domestic business and healthy momentum in the international business, while the full-year margin guidance remains intact,” added the company.

Brokerages on Marico

Morgan Stanley is overweight on the consumer goods player, issuing a target price of Rs 650 per share. The brokerage added that it is confident in Marico’s outlook and that demand, especially in rural areas, is set to improve. The management reiterated its target of improving volumes, and is aiming for a low double-digit EBITDA growth led by margin improvement.

Macquarie issued an outperform call on the FMCG firm, with a target price of Rs 635 apiece. In comparison, the closing price of the counter on October 5 was Rs 569.6. The target price therefore comes at an 11.4 percent upside. The brokerage house said that the pre-Q2 commentary from the firm indicated weak volume growth. As a result, a decline in sales of one percent is expected with 12 percent EBITDA growth in the second fiscal quarter of the current financial year. Macquarie added that Marico’s reiteration of the full year’s margin guidance was encouraging.

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