Shares of Marico, one of India’s leading consumer products companies in the hair and wellness market, have shown a strong upward trend since April, rebounding from a steady decline between September 2023 and March 2024.
In April, the stock made a robust comeback, ending the month with a 4.18% gain and extending its rally into May with an additional 15% increase. So far this month, shares are up nearly 10%, resulting in a cumulative gain of 31.60% in less than three months, trading at ₹654.60 apiece.
In a recent note, domestic brokerage firm Sharekhan retained its ‘buy’ rating on Marico with a revised target price of ₹775 per share, citing the growth pick up the rural segment. The firm highlighted that better growth visibility in the core portfolio, coupled with a focus on premiumisation, will drive consistent earnings growth ahead.
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Marico’s domestic volume growth marginally improved from 2% in Q3 FY2024 to 3% in Q4 FY2024. The underperformance of the VAHO portfolio and muted growth in Parachute rigid packs continued to impact volume growth in the past few quarters.
However, a recovery in rural consumption, led by the expectation of a better monsoon and incentives from the government for the rural economy, will drive the growth of mass consumption in those regions. This should help the VAHO portfolio have a good share in the Hindi heartland (especially at the bottom of the pyramid) to see a good pick-up in demand in the coming quarters, the brokerage stated.
On the other hand, Parachute will see an improvement in volume growth to the mid-single digit as rising copra prices will impact the sentiments of regional and loose players in the near term. Saffola edible oil will get back to positive value growth in Q2 FY2025.
Volume growth will consistently improve, with trade sentiments improving after price stability. Overall, the core portfolio is expected to see a good recovery in volume growth, which will help domestic volume growth improve to high single-digits in FY2025.
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Regarding, foods and premium personal care, the brokerage said the segment will grow above 20%, adding to volumes. It said that portfolio diversification into premium foods and personal care products will improve the revenue growth trajectory in the long run.
Project SETU
Marico rolled out Project SETU, laying out a phased 3-year roadmap to improve the company’s direct reach from 1 million outlets currently to 1.5 million outlets in FY2027. This will be backed by substantial investments in coverage, infrastructure enhancement, and demand generation initiatives.
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Project SETU will not only improve direct reach and weighted distribution, but will also help in market share gains across categories in urban and rural markets in the medium to long run.
Expecting an uptick in domestic volume growth
The management of most of the consumer good companies is hoping for an uptick in domestic volume growth, led by an expected good recovery in rural demand in the quarters ahead. Better monsoons and a likely support coming up from the government in the budget to be declared in July 2024 will help the volume growth trajectory improve from H2FY2025, said the brokerage.
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On the other hand, the drop in Input costs prices will continue to support profitability and will help consumer goods companies focus on recovering volume growth through promotional activities, product launches, and distribution expansion.
The brokerage pointed out that small companies will perform better as compared to large packs in the near term.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 10 Jun 2024, 03:03 PM IST
