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Marico warns of profitability hit from higher taxes and weak currencies

Marico warns of profitability hit from higher taxes and weak currencies

Marico warns of profitability hit from higher taxes and weak currencies
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By Hormaz Fatakia  Oct 4, 2022 9:38:04 AM IST (Updated)

Marico's International business outperformed the domestic business despite the geopolitical headwinds.

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Marico's its quarterly business update warns that a higher effective tax rate, along with currency depreciation in multiple geographies, is likely to impact the FMCG company's profitability.
Marico's effective tax rate was 21.7 percent in FY22. As benefits in one of its manufacturing units expire, the company anticipated the effective tax rate to increase by 250-300 basis points from the current financial year.
The fast-moving consumer goods major, known for brands like Saffola and Parachute, witnessed volume growth in the low-single digits for the India business. Consolidated revenue for the quarter also increased by a similar quantum.
Downtrading continued in the rural markets as retail inflation remained higher during the period. On the other hand, Marico's urban and premium discretionary segments continued to fare better.
Marico's international business outperformed the domestic one, delivering constant currency growth in double digits, supported particularly by Bangladesh and Vietnam. Each overseas market contributed positively despite the recent geopolitical headwinds. The management expects Myanmar and the rest of South-East Asia to be the key growth drivers going forward for the overseas business.
The company anticipates edible oil prices to remain lower over the next few months. To protect market share and volumes, Marico has passed on the benefits of falling input prices, even while absorbing higher inventory costs.
Although gross margins may decline sequentially due to currency weakness across geographies, Marico remains hopeful that they will remain in positive territory for the full year. Operating margins are also likely to remain flat year-on-year.
Marico expects consumption trends to improve in the second half of the financial year as retail inflation is expected to cool off. It also expects higher crop realizations and the upcoming festive season to provide a fillip to sentiment.
The company maintains its aspiration of delivering sustainable and profitable volume-led growth over the medium term, enabled by the strengthening brand equity of its core franchises and scaling up new engines of growth.
Motilal Oswal finds Marico's current valuations to be inexpensive given its strong earnings growth potential. It has maintained its buy recommendation on the stock with a price target of Rs 620.
Nirmal Bang expects the increased penetration of Saffola Edible Oils, diversification of the domestic portfolio, recovery in international markets and distribution expansion in India to aid the company's medium-term growth aspirations. It has maintained its Accumulate rating on the stock with a price target of Rs 580.
Shares of Marico are down 0.8 percent in early trade to trade at Rs 525.40.
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