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Home >Markets >Mark To Market >Marico’s foray into instant noodles good, but not a gamechanger for the stock

MUMBAI: Shares of Marico Ltd hit a fresh 52-week high on Monday on the National Stock Exchange, but soon erased gains. Last week, Marico had said it will enter the instant noodles category through the launch of Saffola Oodles.

“It’s an interesting launch," said an analyst requesting anonymity. “Although Nestle India Ltd’s dominance in noodles makes it difficult for other companies to make a mark in this category," he added.

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For Marico, however, the move should fetch some additional revenues. Needless to say, if at-home consumption remains healthy, that would support growth. In its December quarter information update, Marico had said, “The company will continue to innovate and broaden its play in the foods category and is poised to reach the Rs450-500 crore mark by FY22."

ICICI Securities Ltd believes that Marico's (now) aggressive and (somewhat) scale-oriented approach in food segment can lead to revenues of Rs800-1,000 crore by FY25. The broking firm in a report on 19 February, added that, “Instant noodles is an about Rs6,000 crore category where we believe Marico intends to participate in the premium-end, which is about 10% of the category. Let's say, if it achieves a 20% share in this segment, it will reach its objective of Rs100 crore revenue from this new business line."

To be sure, on an overall basis, Marico appears to be on a steady footing, moving ahead. Its December quarter volume performance was good. The company saw 15% volume growth in its India business last quarter. Note that this was the second consecutive quarter of double-digit volume growth.

Consolidated gross profit margin contracted 223 basis points year-on-year, due to higher input prices, especially of copra and rice bran. One basis point is one-hundredth of a percentage point. In its Q3FY21 information update, Marico had said it is witnessing early signs of copra prices cooling off and expects copra prices to be flat in FY22 on an annualized basis.

Meanwhile, Marico’s shares now trade at about 42 times estimated earnings for financial year 2022, based on Bloomberg data. “A few more quarters of sustained healthy performance could drive further rerating of the stock, in our view," said analysts from JM Financial Institutional Securities Ltd in their December quarter review report on 27 January.

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