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Shares of Marico tanked as much as 5 percent on Wednesday as a weak update and commentary from the FMCG player dented investor sentiment. At 9:27 am, shares of Marico were trading 4.3 percent lower at Rs 520.8 on BSE.

The FMCG company expects marginal growth in profits in Q4 FY22.

The company said that during the quarter, consumption trends remained subdued amidst weak rural sentiment and inflation in global commodities aggravated due to geopolitical tensions.

While companies affected price hikes across FMCG categories to cope with the cost push, persistent inflation continued to hurt consumer wallets across rural and urban segments, Marico added.

Revenue growth in the quarter was in the low single digits, while volumes were marginally positive on an exceptionally high base, leading to double-digit volume growth on a 2-year compounded annual growth rate basis.

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The International business delivered double-digit constant currency growth on a strong base, with all markets faring well. The business has registered a stellar mid-teen constant currency growth in FY22.

However, consolidated revenue growth in the quarter touched high single digits.

Among key inputs, copra prices remained soft, however edible and crude oil prices spiked due to geopolitical tensions. In response, Marico had also taken calibrated price hikes in the Value Added Hair Oils and Saffola Edible Oils portfolios during the quarter. Consequently, gross margin is expected to be at similar levels as the same quarter last year, Marico said in an exchange filing.

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A&P spends were higher on a year-on-year basis, as the FMCG player maintained investments towards the strategic brand building of core and new franchises.

Here is what the brokerage firms say:

Nomura

The brokerage firm believes that demand held up relatively well against a high base and weak consumption trend. Nomura has estimated consolidated revenue growth of 7.5 percent in Q4 and, EBITDA and profit growth of 9 percent and 5 percent YoY respectively. Nomura has maintained its ‘buy’ call on Marico shares with a target price of Rs 665 and views the FMCG company as a strong beneficiary of a resilient core and significant future growth vectors.

Macquarie

Business update for Q4 points to a broadly flat profit and marginal volume growth in India, the brokerage firm noted. Macquarie has cut FY22 EPS estimates for Marico by 4 percent to factor in higher advertising spend in Q4. The brokerage firm has an ‘outperform’ call on the stock with a target price of Rs 600.

CLSA

According to CLSA, Marico stock valuations look balanced at current levels. The brokerage firm expects gross margin and operating margin to be stable on a YoY basis. It also sees EBITDA growth of 7 percent YoY. CLSA has an ‘underperform’ call on Marico shares with a target price of Rs 530.

ICICI Direct Research

The company saw low single-digit volume growth mainly due to growth in Parachute on the back of softening copra prices and strong growth in foods and digital brands, the domestic brokerage firm added. ICICI Direct Research believes crude and rice-bran oil prices have adversely impacted the growth for Marico which would have otherwise been a strong quarter for the FMCG company.

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