Following lackluster Q2 earnings, the price of Marico shares drops; should you purchase the stock?

 Following lackluster Q2 earnings, the price of Marico shares drops; should you purchase the stock?

Following the release of the company's financial results for the second quarter of FY24, which showed a decline in sales amid sluggish domestic activity, Marico's share price saw a little decrease on Tuesday. On the BSE, Marico shares dropped as much as ₹per share.

For the quarter that ended in September 2023, the Parachute hair oil manufacturer recorded a consolidated net profit of ₹360 crore, a 17.3% increase over the ₹307 crore reported in the same time the previous year.

The company's operations revenue in Q2FY24 decreased slightly year over year to ₹2,476 crore from ₹2,496 crore, primarily due to currency headwinds in the foreign sector and domestic pricing reductions. During the same time, the firm recorded a 3% YoY gain in volumes.

Marico's EBITDA margin rose by 280 basis points to 20.1% YoY, while EBITDA climbed by 14.8% YoY to ₹497 crore.

Following the Q2 results, the majority of analysts remained optimistic about Marico shares and predicted further strong performance from the business.

Brokerages' opinions on Marico's Q2 performance and stock are as follows:

The Financial Services of Motilal Oswal

Motilal Oswal Financial Services' FY24 EPS forecasts remain unchanged, while its FY25 EPS expectations were reduced by 7.2% as a result of the management's remarks about volatility and its anticipation of lower EBITDA in FY25 than in FY24.  

Marico is making a lot of effort to meet its medium-term growth goals, and its core portfolio has done well. With a projected RoE of more than 35% and a ~10–11% CAGR during FY 23–25, its profits growth prospects are favorable. The Foods and digital-first businesses are leading the way in the much-needed diversification. If this continues, Marico may see bigger multiples than in the past, according to the brokerage company.

It lowered the target price to ₹640 per share and restated its "Buy" recommendation on the company.

EBITDA and PAT increase of 15% and 17% YoY, respectively, and a 1% YoY decline in sales for the second quarter of FY24 were roughly in line with Nuvama Institutional Equities' predictions, while somewhat below Street's projections.

Domestic value decreased by 3% YoY as a result of price adjustments in major portfolio during the last 12 months, despite a 3% YoY increase in domestic business volumes. Nuvama Institutional Equities said, "We are reducing our projections for FY25E and FY26E EPS by 0.5% and 0.5%, respectively, as we wait for a prolonged volume rebound.

The firm maintained its "Hold" recommendation on the company and lowered its target price from ₹606 to ₹602 per share.

Get live updates on L&T Q2 Results here.

M&M Finance

Marico's September quarter results exceeded JM Financial analysts' expectations by 2-3%.

Most of the topline performance was in line. The strong GPM rebound once again was the main factor in the beat in profits. The country's irregular rainfall patterns, along with heightened competition from smaller companies and a reduction in inventory in the general trade channel, have all contributed to the soft volume trajectory that is now plaguing the whole industry, according to JM Financial.

"There is a strong emphasis on profitability here, and newer enterprises are expanding successfully. Going ahead, we anticipate that the stock will perform better because of the reduced topline drag caused by price adjustments. This, together with the ongoing advantages of RM-cost, offers some consolation in terms of earnings visibility, according to JM Financial.

The firm kept its buy call in place, with a ₹600 share target price.

To spur development in the medium term, Sharekhan Marco intends to enhance domestic volume growth, fortify its market share across categories, and maintain growing momentum in the global business. According to Sharekhan, proactive cost management, a favorable mix, and falling raw material costs will be the main drivers of margin development.

The company is presently selling at 44x/38x its FY2024E/FY2025E profits, having dropped by 10% from its previous high. 

With a price objective of ₹645 per share, the brokerage maintained its "Buy" recommendation on the company.

The stock has increased by just over 4% year to date (YTD), while the Marico share price has dropped by more than 5% in the previous three months.