Shares of Marico Ltd rose 6 per cent to Rs 301.65 on the BSE on Tuesday as the company's margin expanded in the March quarter and earnings largely met estimates despite 50 per cent decline on a year-on-year (YoY) basis.
The FMCG firm's earnings before interest, tax, depreciation, and amortisation (Ebitda) margin increased by 58 basis points YoY to 18.9 per cent in Q4FY20 owing to stable input costs and lower advertising spends. This also contained the impact on the top line, with Marico’s pre-tax profit declining 3 per cent YoY to Rs 262 crore versus analysts’ estimate of Rs 267 crore.
The net profit decline of 50.6 per cent to Rs 199 crore was because of tax credit in the year-ago period and Rs 10 crore of exceptional items in Q4FY20.
Moreover, the management also remained confident of maintaining FY21 operating margin at the FY20 level of around 20 per cent, led by robust cost-cutting, such as advertising spends.
On the other hand, Marico clocked its fastest volume growth of 25 per cent in Saffola edible oil as customers stocked up food and essential items in light of the pandemic and the lockdown. However, its major hair oil category, which contributes over 55 per cent to Marico’s India business, witnessed an 8-11 per cent volume decline in Q4, resulting in a 3 per cent fall in the overall domestic volumes.
This, along with lower realisation amid price correction in Parachute rigid and a 5 per cent fall in international business sales (22-23 per cent of consolidated revenue), resulted in a 7 per cent year-on-year (YoY) fall in the top line to Rs 1,496 crore, lower than the Bloomberg Consensus estimate of Rs 1,538 crore.
Brokerage firm Jefferies revised earnings per share (EPS) for Marico higher post the results, factoring in higher margin for FY21.
"Margin beat drives a positive earnings surprise. Current utilisation at 75 per cent signals a gradual stabilisation. Moreover, the stock offers attractive risk-reward," the brokerage said.
Analysts at Motilal Oswal Securities said,"MRCO has a more resilient portfolio of products than its peers to withstand the COVID-19 led sales and earnings decline in FY21. This is possible on account of (a) recovery in Parachute volumes before the COVID-19 impact, (b) successful turnaround and strong growth witnessed in Saffola edible oils and foods, and (c) better outlook for the international business compared to peers. Further, outlook on material costs is also better than the earlier expectation of a possible inflation."
At 9:40 AM, the stock was up 3 per cent as compared to 1.2 per cent gain in the S&P BSE Sensex. Around 48.1 lakh shares have changed hands on the NSE and BSE so far. In 2020 so far, Marico has fallen 9.83 per cent as compared to Sensex's 23.21 per cent plunge.