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Shares of Marico jumped over 5 per cent on Tuesday, despite the overall market sentiment remaining sluggish. The fast-moving consumer goods company saw a sharp surge in trading volumes too, as analysts said the counter saw value-buying as well as defensive-buying from investors.
The stock jumped 5.48 per cent on the BSE to close at ₹318.45 and trading volumes increased to 98,000 against the two-week average of 31,000 shares. On the NSE, it closed at ₹318.95, a gain of 5.26 per cent over the previous day’s close.
“The company had reported strong Q3 numbers and a promising outlook. With the overall market condition remaining nervous, investors see this stock as an opportunity,” said a Chennai-based analyst, who has been tracking the markets for decades.
The Mariwala-controlled FMCG company had reported a 16.51 per cent increase in consolidated net profit at ₹223.28 crore for the quarter ended December 31, 2017.
Marico attributed Q3 earnings to higher income led by gains in market share.
According to HDFC Securities, Marico has been de-rated due the many headwinds (high copra prices, trade channel disruption and weak international scenario) of the last 12 months. “We believe most of the headwinds have peaked and we expect re-rating in the stock for the next 12 months,” according to HDFC Securities.
Healthy upside
HDFC Securities, which maintains a ‘buy’ rating on the stock with a target price of ₹380 further says: “We are encouraged by Marico’s market share gain (90-95 per cent portfolio gained in the first nine months of FY18), in a challenging period. However, operating performance (EBITDA down 2 per cent versus Dabur’s up 4 per cent in 9MFY18) was subdued owing to higher input cost inflation.
The stock has underperformed in the last one year, 15 per cent returns versus 18 per cent for Nifty FMCG Index. “We believe copra prices have peaked and expect healthy upside in the medium to long term,” the report added.
Marico is a play on rural proxy as it has a strong brand in Parachute hair oil, which is a play on converting loose to branded coconut hair oil. It is driving penetration in North and East India via low-cost Amla hair oil and loose mustard hair oil under Nihar Shanti Amla and Nihar Sarson Kesh Tel, according to Elara Capital.
Besides, it is driving premiumisation in edible oils, says Elara Capital, which maintains its neutral rating on Marico with a target price of ₹330.
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