On Wednesday, JPMorgan (NYSE:JPM) maintained an Overweight rating on Marico Ltd (MRCO:IN) stock with a steady price target of INR715.00. The firm's assessment follows Marico's second-quarter performance, which aligned with market expectations, bolstered by higher-than-anticipated other income that led to an earnings surprise.
The quarter witnessed a gradual improvement in volume growth, with domestic volumes increasing by 5% year-over-year, compared to a 4% rise in the previous quarter.
Marico's coconut oil (CNO) volumes showed a 4% year-over-year growth, with secondary volumes experiencing high single-digit growth. However, the value-added hair oil (VAHO) category remained subdued.
The company is expected to see a boost in pricing in the second half of the year, with price increases in CNO by approximately 4% and Saffola edible oils by around 5% initiated towards the end of the second quarter.
The company's newer business segments, including Foods and Digital-first ventures, reported robust growth. Foods grew by 28% year-over-year, with organic growth in the mid-teens, while the Digital-first segment achieved a recurring annual revenue of Rs. 5.25 billion. These segments are on track to double their annual recurring revenue over the forecast period from FY24 to FY27 as per the company's targets.
Despite expectations of margin pressures in the second half due to rising raw material costs, potentially leading to a maximum EBITDA margin contraction of 40-50 basis points, management aims to maintain stability.
JPMorgan anticipates that Marico's double-digit revenue growth momentum will continue into the second half of the fiscal year, spurred by increased pricing and an improving trajectory of volume growth, which should, in turn, support the company's stock performance.
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