Jefferies maintains a positive stance on Marico, retaining its “BUY” recommendation. The report slightly moderates estimates based on lower revenues but underscores the overall positive trajectory. The target price is adjusted slightly lower to Rs650 from Rs660, reflecting Jefferies’ ongoing confidence in Marico’s growth potential.
The report points out that Marico has witnessed a significant expansion in gross margins (GM), reaching a multi-quarter high. This boost is attributed to a correction in input costs and a strategic shift in product mix. Despite a noteworthy increase in advertising expenditures, Marico managed to expand its Ebitda margin smartly.
While the company experienced a decline in revenues, Jefferies emphasizes that this metric may be less relevant due to Marico’s substantial dependence on high commodity prices. However, the gross profit demonstrated positive growth on a quarter-to-quarter basis.
The report highlights that Marico’s volume growth remained weak during the analyzed period. Nevertheless, the company is poised to conclude the fiscal year 2024 with its best-ever operating margins.
Jefferies acknowledges a moderation in growth within Marico’s foods and personal care segments, expressing some concern. Despite this, the management exuded confidence about the fiscal year 2025, anticipating low-teens growth in earnings per share (EPS).
Marico’s outlook, as per the report, anticipates a gradual recovery in volumes. This recovery is expected to be driven by an improved macroeconomic environment and strategic initiatives in the general trade distribution channel, with a likely short-term impact.
The report suggests that Marico foresees positive valuation growth in the fourth quarter, accelerating to double digits in the fiscal year 2025. This optimistic outlook is linked to the anniversary of price cuts and modest inflation in copra, contributing to the overall improvement.
Furthermore, Marico aims to expand its margins further by focusing on premiumization and enhancing margins in select international markets. The company sets a target of delivering low-teens bottom-line growth in the fiscal year 2025.