Why Sharekhan sees new 52-week-high for Marico with a potential upside of 26%?

The research analysts of the broking firm Sharekhan said in a note that “Marico’s Q3FY2023 business update provides a glimpse of sequential improvement in the operating performance, led by recovery in volume growth and margin improvement on a q-o-q and y-o-y basis. With volume growth to be at mid-single digit and margins to expand on a y-o-y and q-o-q basis, we expect the company’s revenue/EBIDTA/PAT to grow by 3.7%/6%/2% in Q3FY2023. In H1FY2023, Marico’s revenue and EBIDTA grew by 27% and 18% over H1FY2020, which is much better compared to close peers in the space. The company has maintained its medium-term aspiration of achieving volume-led profitable growth over the next two-to-three years. Fast scale-up in the foods business (Rs. 850-1,000 crore in FY2024) and premium personal care (Rs. 450-500 crore in FY2024) will provide a boost to overall operating performance and will help the company over the next two-to three years.”

“Marico’s management has maintained its medium-term aspiration of 13-15% revenue growth with volume growth 8-10% in the domestic business and double-digit constant currency growth in the international business over the next two to three years. We believe fast scale-up in the foods business to Rs. 850-1,000 crore in FY2024 and premium-personal care business to Rs. 450-500 crore in FY2024 through consistent launch of new products and distribution expansion will give strong support to growth aspiration along with recovery in the core categories in the coming years. Further, if we compare Marico’s H1FY2023 performance with that in H1FY2020, it is much better compared with other peer companies with revenue and EBIDTA growing by 27% and 18%. Thus, with strong strategies in place, Marico’s growth will be robust in the backdrop of improved demand environment,” said the analysts.

“Marico is banking on 4Ds (Diversification, Distribution, Digital, and Diversity) to drive consistent double-digit earnings growth in the medium to long term. Gaining market share in the core domestic portfolio through new launches, scaling up the foods business, and improving growth prospects in Bangladesh and Vietnam are some of the key catalysts for growth in the medium to long term. We expect Marico’s earnings to witness a 16% CAGR over FY2022-FY2025. The stock is currently trading at 39.2x/34.5x its FY2024/FY2025E earnings, which is at a discount to its five-year average multiple. Attractive valuations and much better growth visibility compared to close peers make it a better pick in mid-to-large consumer goods companies,” they further claimed.

A sharp increase in key input prices from current levels or heightened competition in core categories would act as a key risk to our earnings estimates, said the analysts.

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