FMCG firms had a lot to endure in the June quarter of the financial year 2023 (Q1FY23) as soaring inflation not only raised their input cost but also eroded consumer demand.
FMCG player Marico on August 6 reported a 4% year-on-year (YoY) rise in June quarter consolidated profit to ₹371 crore. The company had reported a profit of ₹356 crore in the corresponding quarter last year.
The maker of Parachute reported a 1% YoY rise in revenue from operations at ₹2,558 crore against the profit of ₹2,525 crore reported in the same quarter last year.
EBITDA rose 10% YoY to ₹528 crore from ₹481 crore while EBITDA margin improved 159 bps YoY to 20.6% in Q1FY23 against 19% in Q1FY22.
The company said in the near term, it expects volume growth to be in the positive zone from Q2 under the current demand conditions.
It hopes to accelerate volume growth to its medium-term target levels in the second half (H2) of the year, provided inflation cools off and eases pressure on demand.
"The international business has maintained a steady momentum of healthy profitable growth over the last five years. While there are risks of currency depreciation and inflation in some markets, we are confident of maintaining the double-digit growth momentum in the coming quarters. Taking into account the quarterly gyrations of all cost line items, we would aim to deliver 18-19% EBITDA margin in FY23," Marico said.
The stock is down 14% from its 52-week high of ₹606 that it hit on October 18, 2021, on BSE. Year-to-date, this stock is up 2% against a 14% rise in the BSE FMCG index.
Brokerages remain positive
Brokerages are mostly positive about the stock even as they expect near-term pain due to the ongoing headwinds.
Motilal Oswal Financial Services maintained a buy call on the stock of Marico with a target price of ₹605, highlighting that the company's Q1FY23 earnings surprised positively on the front of EBITDA and PAT while the volume, sales, and gross profit were in line expectations.
The brokerage firm pointed out that the much-needed diversification is gathering momentum in the foods and digital-first brands and if sustained, this can lead to higher multiples for Marico as compared to the past.
"For now, its earnings growth provides a safe haven versus its staples peers in an uncertain environment. We believe the company's margin base gets less challenging from Q2FY23," Motilal Oswal said.
"The company is witnessing less intense margin pressures as compared to its peers. Over an FY22 base, it is likely to report an EBITDA and earnings growth of 15-16% CAGR over FY22-24," said Motilal Oswal.
However, the brokerage firm said due to the more gradual than expected recovery in volumes and some price
corrections taken to boost growth, it has cut our FY23 and FY24 earnings per share (EPS) forecasts by 4-5%. Its earnings growth prospects are nevertheless healthy about 16% CAGR over FY22-24, with RoE of over 40%.
JM Financial also maintained a buy call on the stock while raising the target price marginally to ₹565 from ₹560.
"Marico’s June-quarter report was on expected lines. Volume delivery (-6%) was a disappointment but the benefit of deflation in copra costs has finally played out and drove a strong gross margin expansion this time round (100bps better than we expected). This, along with impending correction in veg-oil prices going forward should continue to benefit gross margin for the company in rest of FY23E and likely also FY24E," JM Financial said.
The brokerage firm pointed out that while the medium-term outlook of the company remains intact, the near-term volume trajectory is unlikely to look good given the challenging domestic context.
"The irony is that a more urban-centric player like Marico is feeling the pinch of rural slowdown while Dabur, with a larger rural salience, does not feel the same way. Management expects positive volume growth here onwards but acceleration to the stated medium-term target levels (8-10%) would be contingent upon the macro. Near-term triggers appear limited for now," said JM Financial.
According to a MintGenie poll, an average of 38 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations are those of individual analysts or broking firms and not of MintGenie.
