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Marico Shares Surged 6% Despite 51% Drop In Q4 Profit: Here's Why

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On Tuesday, shares of Marico Limited, known for its hair oil product Parachute, rose as much as 6.1 percent in reaction to its earnings for the fourth quarter of 2019-20. The stock snapped its five-day losing streak and was also the top Nifty FMCG index performer on Tuesday as it touched an intraday high of Rs 301.9 per share.

Marico Shares Surged 6% Despite 51% Drop In Q4 Profit: Here's Why
Marico: Quotes, News
BSE 310.00BSE Quote6.45 (-2.08%)
NSE 310.40NSE Quote6.1 (-1.97%)
 

The FMCG has reported a 50.6 percent drop in its March-ended quarter net profit but a host of brokerages stayed positive on the outlook for the company and said that its performance was relatively better than its peers.

Q4 highlights

  • Marico's net profit for Q4 was reported at Rs 199 crore, and the significant year-on-year decline was due to the tax credit in the same period last year and Rs 10 crore of exceptional items in March 2020.
  • Management remained confident of maintaining an operating margin for the financial year 2020-21 at the same level of 20 percent seen in the previous year, led by robust cost-cutting, such as advertising expenses.
  • The company reported its fastest volume growth of 25 percent in Saffola edible oil in the quarter as consumers hoarded essential items amid the pandemic.
  • However, there was an 8-11 percent decline in sales volume in the hair oil category, that contributes to over 55 percent to its India business, bringing overall domestic volumes down by 3 percent.

Brokerage remained positive on the stock

Jefferies revised its earnings per share (EPS) higher post the results, factoring in higher-margin for FY21.

"Margin beat drives a positive earnings surprise. Current utilisation at 75 percent signals a gradual stabilisation. Moreover, the stock offers attractive risk-reward," the brokerage firm said.

Motilal Oswal Securities analysts think Marico "has a more resilient portfolio of products than its peers to withstand the COVID-19 led sales and earnings decline in FY21."

The brokerage said that it was "on account of (a) recovery in Parachute volumes before the COVID-19 impact, (b) successful turnaround and strong growth witnessed in Saffola edible oils and foods, and (c) better outlook for the international business compared to peers. Further, outlook on material costs is also better than the earlier expectation of a possible inflation."

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