Rural Recovery And Foods Expansion Will Strengthen Future Prospects

Key Takeaways

• Focus on rural sales and e-commerce strategies supports revenue growth and higher margins through improved product mix and market penetration.
  
• International expansion and brand investments boost market share and earnings, positioning Marico for sustainable future growth despite currency challenges.
  
• Inflationary pressures and intense competition could hinder Marico's profitability and revenue growth across key segments and international markets.

Catalysts

Manufactures and sells consumer products in India.

• The rural recovery, driven by favorable crop conditions and government schemes, continues to outpace urban growth, which could positively impact revenue growth through increased rural sales penetration.
  
• The strategic focus on e-commerce and organized retail channels is expected to drive premium portfolio growth, which can lead to higher net margins due to better product mix.
  
• Expansion of the Foods portfolio to around ₹1,000 crores ARR and strategic investments in new products suggest potential revenue growth, as these divisions are likely to gain higher market share and contribute more significantly to total earnings.
  
• The international business's consistent double-digit growth and market share gains, particularly in Bangladesh, MENA, and South Africa, highlight opportunities for revenue and earnings growth, despite currency headwinds.
  
• Investments in brand building and digital innovation, along with the aim to transform into a profitable consumer digital company, position Marico for sustainable earnings growth in the medium to long term, potentially increasing EPS.

Marico Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marico's revenue will grow by 10.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.5% today to 15.9% in 3 years time.
• Analysts expect earnings to reach ₹22.3 billion (and earnings per share of ₹17.3) by about April 2028, up from ₹16.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹18.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 59.9x on those 2028 earnings, up from 53.0x today. This future PE is greater than the current PE for the IN Food industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Marico Future Earnings Per Share Growth

Risks

• Marico faces challenges from inflationary pressures, especially with raw material costs for products like Parachute and Saffola, potentially impacting net margins and profitability.
  
• Intense competition in the value-added hair oil (VAHO) segment, particularly at the bottom of the pyramid, can affect volume and market share growth.
  
• Continued sluggishness in the General Trade (GT) channel, a significant distribution channel, might limit revenue growth despite innovations in other channels.
  
• Currency headwinds impacting international markets such as Bangladesh, MENA, and South Africa pose risks to overall consolidated revenues and EBITDA.
  
• Volatility in copra and vegetable oil prices can result in unpredictable impacts on EBITDA margins and present execution risks if price corrections are not managed effectively.

Valuation

• The analysts have a consensus price target of ₹721.921 for Marico based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹800.0, and the most bearish reporting a price target of just ₹492.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹140.2 billion, earnings will come to ₹22.3 billion, and it would be trading on a PE ratio of 59.9x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹656.55, the analyst price target of ₹721.92 is 9.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.