Consumer major Marico stock up 12% from Aug lows
Published On: Wednesday, October 6, 2021 | By: Team KnowMyStock
Consumer major Marico stocks rose about 2.4 percent in trade today(6th Oct.2021) after its quarterly update highlighted pick up in demand and improving consumer sentiment across categories. While the ongoing vaccination and lower covid infections not only led to healthy overall demand, improved mobility too rubbed off on growth in discretionary and out-of-home categories. For its domestic business which accounts for three-fourths of its revenues, revenue growth came in at low twenties which was in line with analyst estimates. After an 11 percent dip in Q1FY21, Marico’s revenue growth has been trending up over the last three quarters on a lower base and gradual recovery. The company had ended the June quarter with a growth of 26 percent. While the sharp 14 percent decline in domestic volumes had dragged down the two-year average quarterly growth to 3.5 percent in the June quarter, the company indicated that the metric is now closer to double digits.
While volume and value growth are robust, the street will keep an eye out for margin performance given rising input costs. While crude oil and edible oil prices are higher or have held firm in the September quarter, copra prices have seen a 12 per cent correction on a sequential basis. Given that all commodities are up as compared to the year ago period, gross and operating profit margins will be under pressure y-o-y. As a consequence, the company expects a modest bottomline growth in the quarter. CLSA expects gross margins in the September quarter to fall 500 basis points YoY to 53 per cent while operating profit margins are estimated to come down by 195 basis points to 17.6 per cent.
The stock which has gained 12 per cent since its lows towards the end of August is currently trading at 47.5 times its FY23 earnings estimates. CLSA has a underperform rating with a price target of Rs 500 (12 per cent downside). Investors should await the growth trends and stability in margins before considering the stock, experts opnied.
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