Shares of FMCG giant Marico Ltd fell more than 6.5% in early trade on November 7 after the company reported a 3% year-on-year decline in its consolidated net worth. At 11:50 am, the stock was trading at a daily low of Rs 503.

While the results were in line with the expectations of most market experts, the company stressed on November 4 that the macro environment remains challenging, with a clear urban-rural growth gap.

In its earnings call, the company also emphasized that “it does not expect to gain near-term market share at the expense of gross margin contraction,” reflecting a difficult operating environment, at least in the near term.

The company reported a consolidated net profit of Rs 301 crore in Q2FY23, compared to Rs 309 crore a year ago. Profit fell 19% month-on-month compared to Rs 371 crore in April-June.

The Parachute and Saffola maker’s consolidated revenue rose 3% year-on-year to Rs 2,496 crore compared to Rs 2,419 crore in the same period last year. On a sequential basis, revenue was slightly 2% lower than the previous quarter’s Rs 2,558 crore.

Its consolidated gross margin increased 120 basis points year-over-year to 43.6%, while the sequential contraction was due to high-cost inventory depletion and currency depreciation. The comprehensive EBITDA margin was just under 17.3.

“The current weak macro environment, a difficult operating environment (for edible oils) and a less supportive macro environment for virgin coconut oil and value-added hair oils are near-term concerns,” said a report from brokerage ICICI Securities Ltd.

Oil value added was weak in the quarter (up 2% YoY) due to lower transaction volumes and weaker consumer confidence. However, it highlights a better performance at the top end of the market.

Consumer price intervention drove high single-digit growth in saffron cooking oil. The Saffola Foods franchise grew 26% yearly, driven by a strong performance in the oatmeal business and the healthy appeal of new product launches. The company targets food business revenue of Rs 850-100 crore by FY24.

However, despite the strong and immediate reaction witnessed by the counter, the brokerage was confident about the company’s prospects and recommended a “buy” or “add” to the stock.

ICICI Securities has cut its earnings forecast for FY23-24 by 3-2% and forecasts a CAGR of 9% for revenue and 15% for PAT for FY22-24.

It maintained an “upgrade” with a revised discounted cash flow (DCF)-based target price of Rs 570 (previously Rs 550). “Based on our target price, the stock will trade at 46 times earnings on March 24,” the brokerage said while highlighting a key downside risk of higher-than-expected copra price inflation.

Although HDFC Securities has cut its FY23 EPS forecast by 2%, there is also an “add” in the company’s stock. The brokerage has a revenue CAGR of 11% in FY21-25 and an EBITDA margin of 20-21% in FY24-25.

“We prefer Marico because of its growth in its core brands, D2C/food push, and margin upcycle,” HDFC Securities said in its report. “We value the stock at 42x Sep ’24 EPS to arrive at a target price of Rs 565.”

Brokerage firm Motilal Oswal Financial Services reiterated its “buy” rating on the stock as it maintained a target multiple of 45 times September 2024 EPS to reach a target price of Rs 620.