Marico shares tank 3% post Q3 business update, here's why

Shares of Marico Limited tanked 3 per cent to hit an intraday low of Rs 498.2 on BSE after the company posted its business update for the quarter ended December 2021.
 
The stock opened 1.4 per cent lower at Rs 507 against the previous close of Rs 514.05 on BSE. With a market capitalisation of Rs 64,600 crore, the shares stand lower than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
 
The company informed that the quarter was characterised by slowing consumption patterns which affected the sector as a whole. This was mainly due to continuing inflation impacting overall disposable incomes as well as rising mobility unleashing some degree of pent-up demand for discretionary goods, services and out-of home consumption.
 
It added that rural demand was also sluggish, albeit optical to an extent, given the high base. Revenue growth in the quarter was in double digits, while volumes were flat, owing to the weaker consumption sentiment and a strong base.
 
Marico informed that Parachute Coconut Oil had a muted quarter on a high base. Value-Added Hair Oils posted softer growth in value terms in the quarter but has delivered double-digit value growth on a 2-year CAGR basis. The Saffola franchise grew in the high teens in value terms, led by strong 20% growth in Foods, which is on course to reach the Rs 500 crore mark in revenues this year.
 
The company further added that Saffola Edible Oils volumes dropped, largely owing to higher in-home consumption in the base and weak trade sentiment due to fluctuating input prices. Premium Personal Care posted broad-based double-digit growth. Digital-first brands, Beardo and Just Herbs, also tracked in line with expectations.
 
"The International business delivered high teen constant currency growth on a healthy base. All markets fared positively, led by Bangladesh and a smart recovery in Vietnam. Among key inputs, copra prices were range-bound for most of the quarter before witnessing correction towards the end of the quarter. Edible oil prices have also started softening, while crude oil prices remained firm," the company said.
 
Marico expects gross margin to improve sequentially but remain lower on a year-on-year basis. The operating margin is expected to be near the levels of the preceding quarter.
 
Brokerage house Motilal Oswal noted that ongoing topline growth momentum in each of its core segments, significantly higher growth rates as well as targets in the Foods portfolio, and Rs 450-500 crore targeted from its 'Digital-first' range of products are highly encouraging developments for a business that saw a ~6% sales CAGR during FY15-20, before reporting double-digit growth in FY21.
 
It added that the much-needed diversification could lead to higher multiples vis-a-vis those seen in the past. Valuations at 37.3x FY24E EPS appear inexpensive, given the promise of strong earnings growth v/s in the past.
 
"We target 45x Mar'24E EPS to arrive at our target price of Rs 655 per share, implying a 27% upside. We maintain our Buy rating," the brokerage house said.