Marico jumps 8% on strong Q4 results; brokerages maintain bullish stance

Shares of home-grown FMCG firm Marico spurted as much as 7.94 per cent to Rs 367 apiece in the early trade on the BSE after the company reported strong set of numbers for the fourth quarter (January-March) of the financial year 2018-19 (FY19). 

At 09:48 am, the stock was trading 6.47 per cent higher at Rs 362. In comparison, the S&P BSE Sensex was ruling at 38,712 levels, up 112 points or 0.29 per cent. 

The company on Monday posted over two-fold increase in consolidated net profit at Rs 405 crore for the fourth quarter of 2018-19, aided by one-time write-back of tax provisions amounting to Rs 188 crore. It had logged a net profit of Rs 183 crore in the corresponding period of fiscal 2017-18.

Consolidated sales for the quarter grew by 8.7 per cent on year-on-year (YoY) basis to Rs 1,609 crore, mainly on the back of 8 per cent volume growth and largely a flat pricing on YoY basis.

Copra prices have fallen by 19 per cent in Q4FY19 YoY which aided the gross margins of Marico by 230 basis points (bps). Copra is one of the key raw materials used in the manufacturing of hair oil. 

ONE-YEAR PERFORMANCE

At the bourses, shares of the company have remained muted in the last one year. The stock has gained 7 per cent between May 4, 2018- May 6, 2019 period. In comparison, the benchmark S&P BSE Sensex has given nearly 11 per cent returns. The S&P BSE FMCG index, on the other hand, has risen around 4.50 per cent.

BROKERAGES' CALL

Most brokerages believe the company's prospects remain healthy owing to continued benign raw material (RM) environment over the next 12-18 months (copra accounts for 40-50 per cent of material costs), healthy domestic volume growth outlook in key segments, and continued healthy momentum in its international business, and noteworthy traction in new product development.

Motilal Oswal Financial Services (MOFSL) has maintained 'buy' rating on the stock with the target price of Rs 425 (up 25 per cent from the current level). The brokerage expects earnings per share (EPS) CAGR (compound annual growth rate) of nearly 21 per cent over the next two years. 

"We believe volume growth of 8 per cent has been aided by healthy growth in Parachute & Saffola backed by strong promotional activity. Though hair oil category has been saturated from last few years, the company has been able to gain market shares through aggressive promotions. We believe the company has strong pricing power which will help continue promotion & media spends to enhance growth in its struggling brands. We remain positive on the business," say analysts at ICICI Securities.

HDFC Securities, too, remain constructive on Marico and believe its performance will be superior to its peers in FY20. "We value the company at 35x on FY21 EPS arriving at a TP of Rs 386. Maintain BUY," it said.