At Marico, spotlight’s on margin
₹2,477 crore. Here, Saffola edible oil saw a sharp price cut of about 30% due to a drop in vegetable oil prices. The company believes that pricing deflation has bottomed out and the decline would taper off hereon.
Meanwhile, the international business remains on a strong footing. “Our FY24E/25E revenue estimates get trimmed by 2%/1% to factor price deflation in few categories (edible oil and parachute hair oil). However, building margin expansion, our earnings per share for FY24/25 increases by 2%/4%," said Alok Shah, an analyst at Ambit Capital, in a report on 28 July.
On Friday, ahead of Q1 results, Marico’s shares closed 3.7% higher, also scaling a new 52-week high of ₹578.15 apiece. Last week, Marico also said it plans to buy up to 58% stake in Satiya Nutraceuticals Pvt. Ltd for ₹369 crore or six times FY23 sales.
Satiya Nutraceuticals owns the plant-based nutrition brand ‘The Plant Fix –Plix’. Nuvama Research reckons the consideration is quite reasonable given high growth. This deal expands Marico’s footprint in the health and wellness category.
Still, the transaction is too small to move the needle much for Marico. In FY23, Plix’s revenue formed only 1% of Marico’s consolidated revenue, though it bodes well that Plix’s gross margin is high. To be sure, Marico’s shares have gained almost 13% so far in 2023, underperforming the 20% rise in the Nifty FMCG sectoral index.
The optimism on margin trajectory would support the stock in the near term, says Shah. Investor hopes will be dashed if Marico falters on the margin front. Shares of Marico trade at around 42 times their FY25 earnings, according to Bloomberg data.Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!
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