Home / Markets / Mark To Market /  Marico falls as volume growth belies Street expectation, stock may remain subdued

Mumbai: The slowdown in the fast-moving consumer space has taken a toll on stocks of major fast moving consumer goods (FMCG) companies.

Marico Ltd’s September quarter revenue was less than what was estimated by the Street, primarily because of lower volume growth. As a result, the stock was down 6.6% in trade today.

Marico’s second-quarter revenue declined 0.4% year-on-year as volumes grew a meagre 1%. Sales of its flagship brand, Parachute, declined 4% in value terms, and 1% in terms of volume, y-o-y. Besides, revenue of its value-added hair oils slipped 6%, and volume growth here, too, was muted. This is one of its slowest growth rates reported by the company in the last several quarters.

Domestic business declined 3%, but international business was a saving grace, ratcheting up about 8% revenue growth.

Another silver lining was the higher Ebitda (earnings before interest, taxes, depreciation, and amortization) margin as raw material costs were significantly lower. Price of key raw material, copra, declined about 10% y-o-y, while price of rice bran oil and liquid paraffin were 12% and 9% lower respectively. However, an increase in Marico’s advertising and employee costs kept Ebitda margin expansion in check.

The Ebitda margin was about 19.3%, an increase of 270 basis points from the year-ago period.

In a post earnings conference call, the management said it expects mid-single-digit growth in the second half of the current fiscal, and about 8-10% growth in constant currency in its international business.

But analysts have nevertheless downgraded earnings growth due to sluggish volume growth. “We have downward revised our FY20E and FY21E EPS to 8.8 and 9.7 respectively, valuing the stock at 42 times FY21E earnings per share," said Dolat Capital Market in a note to clients.

Amid a broader consumption slowdown, much will depend on how volume growth improves over the next few quarters.

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