Marico shares surged 9% today; target prices suggest more upside
Marico Ltd’s shares surged over 9% following strong Q2 results, driven by price hikes and sustained demand across its premium and mass segments. Analysts noted that while a guidance cut in EBITDA margin dampened FY25 earnings per share (EPS) and target prices slightly, the outlook remains positive. Marico projects double-digit sales growth and moderate margin contraction in FY25. Nomura, Emkay, and Nuvama revised EPS estimates downward for FY25-27 due to higher commodity costs but maintained positive ratings on the stock due to Marico’s growth potential.
Shares of Marico Ltd climbed over 9 per cent in Wednesday’s trade following a healthy set of September quarter results. The FMCG stock climbed 9.30 per cent to hit a high of Rs 687.30, heading towards its 52-week high of Rs 719.80.
The stock gained, as Q2 results suggest improvement in demand. There was no impact from weakness in urban consumption, as Marico caters to premium and mass. The recent sharp price hikes have improved growth outlook for Marico, analysts said. This is even as they were a bit disappointed over a cut in Ebitda margin guidance for FY25 that led to a marginal drop in Marico’s earnings per share (EPS) estimate for the ongoing financial year, and also its target prices a bit.
Marico has guided for a double-digit sales growth in FY25 — 7 per cent in H1 so far, while it expects operating profit margin (OPM) to contract 40-50 basis points in FY25. Nomura India has trimmed its FY25F-27 EPS estimates by 2.5 per cent on lower OPM outlook.
“We value Marico at a P/E of 50 times on Sep-26F EPS (both unchanged) and arrive at a target price of Rs 760 (Rs 780 previously). We maintain our Buy rating and top pick status and forecast a 14 per cent EPS CAGR over FY25-27F,” Nomura said.
Emkay Global said while Marico’s Q2 results stood broadly in line with its expectations, the commentary on topline trajectory was robust, with further 4 per cent price hike in parachute and 15 per cent fresh price hike in edible oil.
That said, it felt the guidance of 40-50 bps Ebitda margin compression YoY for FY25 is negative. Emkay sees 6 per cent earnings growth for H2FY25 against a double-digit growth earlier.
“Given high commodity influence in its portfolio, and aligning with guidance, we conservatively cut margin estimates by 100 bps each over FY26-27. This leads to 2-4 per cent earnings cut over FY25-27E. Factoring in limit on margin, we cut ascribed valuation multiple to 47x – a 10 per cent premium (on better growth, margin, and return profile) to its last 5Y average forward P/E of 43x from 50x. Our new Sep-25E target is Rs 700 vs Rs 775 earlier. We maintain ADD on limited upside.
Nuvama India said domestic sales by value was up 8 per cent while volumes rose 5 per cent YoY, aided by price hikes in Coconut Oil, which more than offset the residual base impact of price cuts in Saffola Oils.
“Parachute increased 10 per cent YoY, whereas VAHO slid 8 per cent YoY. Saffola Edible Oil edged up 2 per cent YoY vis-à-vis 21 per cent YoY revenue growth for Adani Wilmar. Project SETU kicked off across a mix of stronghold and opportunity markets (ten launch states in H1FY25),” Nuvama said.
Factoring in higher copra and edible oil prices, Nuvama cut its FY25, 26, and FY27 EPS estimates by 4-5 per cent. This yields a revised target price of Rs 740 (earlier Rs 780).
Source Link : https://www.msn.com/en-in/money/topstories/marico-shares-surged-9-today-target-prices-suggest-more-upside/ar-AA1taSFx
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