Why did Marico rally 6% despite 51% fall in Q4 profit

NEW DELHI: Shares of Marico rose 6 per cent in Tuesday's trade as a host of brokerages stayed positive on the counter, even as the FMCG firm clocked 51 per cent plunge in March quarter profit.

While analysts have cut earnings estimates for FY21, they said the company's performance was relatively better than FMCG peers, thanks to strong growth in Saffola. Analysts also said the company's portfolio is better-placed to deal with Covid-19 led slowdown. They expect fall in raw material cost to help firm revive volume growth in coming quarters.

The stock jumped 6.05 per cent to hit a high of Rs 301.65 on the BSE.

Antique Stock Broking has a target of Rs 318 on the stock, Emkay Edelweiss Securities Rs 324, Sharekhan Rs 325, Nirmal Bang Institutional Equities Rs 345, Motilal Oswal Securities Rs 350 and Kotak Institutional Equities Rs 350.

Marico on Monday posted 51.12 per cent year-on-year (YoY) fall in consolidated net profit at Rs 194 crore for the quarter ended March 2020. This profit, however, included Rs 10 crore exception one-time loss of Rs 10 crore.

Marico’s year-ago consolidated profit of Rs 399 crore, on the other hand, was aided by one-time tax adjustment of Rs 188 crore. If we exclude the exceptional items from both the periods, the profit fall for March quarter stood at just 3 per cent.

Consolidated revenue fell 7 per cent YoY to Rs 1,496 crore.

The company saw improvement in performance in January and February but witnessed a big hit in March, which led to a 4 per cent drop in volumes. This was the worst volume growth in 10 quarters, and secondly a quarterly de-growth.

As per the management, adjusting for the Covid-19 disruption, the company would have delivered mid-single-digit volume growth.

"Going ahead with subsiding of the impact of Covid 19 coupled with a low base, Marico is expected to witness improvement in performance in its core categories like coconut oil and value-added hair oil. The company's strong focus on improving direct distribution should drive growth in a scenario where wholesale could get further impacted," said Antique Stock Broking.

The company management said a mild deflation in prices of copra and crude based raw materials should aid gross margins or provide the opportunity to cut prices to drive volume growth.

For the quarter, Parachute volumes declined 8 per cent YoY, primarily impacted by the disruption in the supply chain. Saffola edible oils posted 25 per cent YoY volume growth, aided by a jump in demand prior to the lockdown.

Healthy foods segment saw 22 per cent YoY, due to Saffola oats portfolio. In the case of value-added hair oils (VAHO), volumes fell 11 per cent YoY, due to lockdown in the second half of March.

Operating margin for March quarter improved to 22.80 per cent for the domestic market over 21.5 per cent YoY. The company aims to maintain Ebitda margins at over 20 per cent in the India business over the medium term.

"Marico’s Q4 print was decent in the context of Covid-led disruption and weakness in the previous quarters. Operations are up at 70-80 per cent of FY2020 monthly run rate. We like the clarity in strategy. We trim FY2021-22 earnings by 2-4 per cent, roll over and maintain DCF-based fair value at Rs 350," Kotak said.

Motilal Oswal Securities said that Marico has a more resilient portfolio of products than its peers to withstand the Covid 19-led earnings decline in FY21.

"This is possible on account of recovery in Parachute volumes, successful turnaround and strong growth witnessed in Saffola edible oils and foods, and a better outlook for the international business compared to peers. Further, outlook on material costs is also better than the earlier expectation of possible inflation," Motilal said.

The shares of the company closed 4.10 per cent higher at Rs 296.05 on BSE.