Edelweiss Securities is optimistic about Marico and has issued a “buy” rating for the stock, setting a target price of Rs 780 in their research report dated October 3, 2024.
Positive Business Update for Marico
Marico recently provided an update for the second quarter of FY25. Following a disappointing report from Dabur, Marico’s results have reassured investors. The figures align closely with Edelweiss’s expectations. However, the performance of VAHO and Saffola Oils has been somewhat lackluster. Marico is projected to achieve an 8% year-on-year revenue growth, with its domestic business expected to see a 5% volume increase. The international segment is anticipated to grow by 13% in constant currency (CC), with Bangladesh experiencing high-single-digit growth despite a challenging business environment. The prices of copra have risen more than anticipated.
Parachute coconut oil is expected to see mid-single-digit volume growth and double-digit revenue growth. The Foods and Digital-first brands have performed better than expected, leading Edelweiss to maintain a “buy” recommendation with a target price of Rs 780.
Performance in Line with Expectations
Marico’s domestic business achieved mid-single-digit volume growth, showing improvement from previous quarters. Parachute Coconut Oil recorded mid-single-digit volume growth, though this was affected by a reduction in the quantity of oil in key price-point packages. However, it achieved double-digit revenue growth due to earlier pricing adjustments.
Saffola Oils showed low single-digit revenue growth, with a slight improvement in pricing after eight quarters. The VAHO brand faced competitive challenges in its lower-tier segment but is expected to see gradual demand improvements. The Foods and Digital-first brands maintained their strong growth and exceeded targets.
Internationally, Marico achieved low-teen CC growth, with Bangladesh showing high-single-digit growth despite a difficult operating climate, which has now stabilized. Vietnam also experienced high-single-digit growth, while the MENA (Middle East and North Africa) region and South Africa sustained their double-digit growth rates.
Rising Raw Material Costs
Among key ingredients, copra prices rose higher than expected, and a recent increase in import duties caused vegetable oil prices to rise towards the end of the quarter. Prices of crude oil derivatives remained stable.
Future Outlook
Marico anticipates double-digit consolidated revenue growth in the second half of the fiscal year, although gross margins may decrease due to rising input costs as the company focuses on expanding its consumer base. Operating profit growth is expected to lag behind revenue growth.
Q2 FY25 Projections
Marico expects revenue, EBITDA, and volumes to grow by 8%, 5%, and 4.5% year-on-year, respectively. For Q1 FY25, these figures were 6.7%, 9.1%, and 4%. Parachute sales are projected to rise by 8% year-on-year, while Saffola is likely to see low-single-digit revenue growth, and VAHO is expected to remain muted. The international business is expected to grow by 10% year-on-year in constant currency. Bangladesh is projected to grow by 8% in CC terms, despite a week’s impact from political challenges. Gross margins are expected to fall by 147 basis points year-on-year to 49%, while EBITDA margins may decline by 56 basis points year-on-year to 19.5%.
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