Marico share price surges over 9% after Q4FY23 numbers; should you buy or wait? Here’s what top brokerages say

Shares of Marico surged over 9 per cent in early deals on BSE on May 8 after the company posted a mixed set of quarterly earnings for the March quarter of the financial year 2022-23 (Q4FY23).

In the previous session on May 5, the company posted a growth of 18.67 per cent year-on-year (YoY) in consolidated PAT at ₹305 crore for Q4FY23. However, sequentially the performance declined by 8.41 per cent. Marico's PAT stood at ₹257 crore in Q4FY22 and at ₹333 crore in Q3FY23.

In Q4FY23, Marico's EBITDA stood at ₹393 crore up by 14 per cent from ₹346 crore in Q4FY22. EBITDA margins expanded to 17.5 per cent in Q4FY23 versus 16 per cent in Q4FY22, expanding by 153 bps.

Read more: Marico Q4 results: Consolidated PAT up 19% to ₹305 crore, single-digit revenue growth

Brokerages largely positive

Most brokerage firms are positive about the stock and find Marico a decent buy for the long term. However, some of them have pointed out that the earnings of the company may not see a significant upside in the next few years and they downgraded the stock. Still, most of them have largely maintained their positive views.

Brokerage firm Motilal Oswal Financial Services has maintained a buy call on the stock after the March quarter numbers, pegging the target price at ₹590, citing Marico’s Q4FY23 sales was in line with its estimates.

Motilal said the outlook on gross and EBITDA margins is gradually improving.

"The overall consumption trends are indicating improvement and it is likely that the rural sector has bottomed out as the declining volume trend reversed. This should lead to an improvement in MRCO’s earnings growth prospects. Valuations are inexpensive at 43 times and 37.5 times FY24 and FY25 EPS respectively," said Motilal Oswal.

Brokerage firm Sharekhan by BNP Paribas also retained a 'buy' call on the stock with a target price of ₹645.

The brokerage firm has broadly maintained its earnings estimates for FY24 and FY25 as Q4FY2023 performance was largely in line with expectations and management maintained its medium-term guidance.

Sharekhan said that despite multiple headwinds, Marico delivered a decent performance in FY23, registering 3 per cent revenue and 5 per cent PAT growth coupled with 87 bps expansion in OPM (operating profit margin).

The brokerage firm pointed out that the company aims to improve domestic volume growth, strengthen market share across categories and sustain growth momentum in the international business to drive growth in the medium term.

"Expansion in the margin will be driven by easing raw material prices, aggressive cost management and a favourable mix. The stock is currently trading at 39 times and 34 times its FY24 and FY25 earnings, which is at a discount to its five-year average multiple," said Sharekhan.

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On the other hand, brokerage firm Nirmal Bang downgraded the stock to an 'accumulate' and cut the target price to ₹535 from ₹605 even though it highlighted that Marico's consolidated Q4FY23 operating performance was largely in-line with the pre-quarterly qualitative commentary.

Nirmal Bang cut its FY24 and FY25 earnings per share (EPS) estimates by 4.5 per cent and 7.1 per cent, respectively, as it believes Marico's sales growth will be muted in the first half of FY24 and margin recovery will be more gradual than earlier expectations.

"Marico’s core portfolio has delivered a healthy performance and the company continues to make efforts towards meeting its medium-term growth aspirations. However, the stock currently trades at fair valuations of about 44 times and 40 times FY24 and FY25 EPS respectively. We expect earnings growth to be relatively muted at 11 per cent CAGR over FY23-FY25," said Nirmal Bang.

Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.