Marico Share Price Bleeds 5% On Lower Revenue, Volumes Growth In Q2FY24; Buy This FMCG Stock On Dips?

One of the leading consumer products companies, Marico faced the wrath of bears on Thursday after it reported low-digit growths in revenue, volumes, and operating profits for the second quarter of FY24. It would be rising food prices and below-normal rainfall that impacted Marico's performance in the quarter. Among the positives was that Marico's international business witnessed double-digit growth in constant currency.

On BSE, Marico shares ended at Rs 542.55 apiece, down by 4.90% with a market cap of Rs 70,184.08 crore. The stock was near its day's low of Rs 541.50 apiece.

In its exchange filing, in Q2FY24, Marico said, "domestic volumes grew in low-single digits on a year-on-year basis, with low single digit volume growth in Parachute Coconut Oil and Saffola Edible Oils, and low single-digit value growth in Value Added Hair Oils."

It added, "We continued to witness healthy trends in offtakes, market share and penetration across key franchises. The newer portfolios, Foods and Premium Personal Care (including Digital-First), remained on course to achieve full-year aspirations."

On the top-line front, Marico said, consolidated revenue was marginally lower on a year-on-year basis, dragged by pricing corrections in key domestic portfolios over the last 12 months, which will progressively come into the base going ahead. Moreover, currency depreciation in some of the overseas markets had an adverse effect on the reported INR growth in international business.

However, the international business delivered double-digit constant currency growth, thereby exhibiting sustained resilience amidst a volatile global operating environment.

Among key inputs, copra and edible oil prices stayed in a favourable range, although the latter continued to exhibit some volatility. Crude derivatives remained firm with an upward bias. Consequently, Marico expects robust gross margin expansion on a year-on-year basis.

While A&P spends were also significantly ramped up towards strategic brand building of its core and new categories, Marico said, "We expect healthy operating profit margin expansion leading to low double-digit operating profit growth."

In the second half-yearly period of FY24, Marico expects 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.

Should you buy Marico shares on dips?

According to Motilal Oswal, demand trends reflected the previous quarter's patterns for Marico, indicating stability in market dynamics. While rural demand recovery is facing challenges, with rising food prices and uneven
rainfall hindering anticipated progress.

The brokerage added, "There are positive signs for 2HFY24 rural consumption, fueled by factors such as controlled retail inflation, MSP increases, a healthy sowing season, eased liquidity pressures, and heightened government spending."

On the valuation, Motilal's note said, "MRCO has clocked a ~9.1% earning CAGR over FY18-23 and is expected to achieve similar growth over FY24-25E and RoE of ~35%, led by volume growth, improvement in the brand image of core franchises, higher growth in the food portfolio and premium personal care segment. With attractive valuations and a healthy return on equity, we maintain our BUY rating with a TP of Rs 690."

From the current price level, Marico shares have the potential of over 27% upside ahead.

Marico will announce its unaudited standalone & consolidated financial results for the quarter and half year ended September 30, 2023, on October 30th.

Marico is one of India's leading consumer products companies in the global beauty and wellness space. The company has a portfolio of brands such as Parachute, Saffola, Saffola FITTIFY, Hair & Care, Parachute Advansed, Nihar Naturals, Mediker, Pure Sense, Coco Soul, Revive, Set Wet, Livon, Beardo, Just Herbs, True Elements and Plix.