Shares of Marico Ltd traded flat in early deals on Tuesday. However, the stock had risen 4% on Monday, a day when the company released its September quarter (Q2FY21) update.



The company’s insights into how the last quarter panned out were encouraging, especially on the margin front. Marico said, “Although the key raw materials have seen an inflationary trend towards the end of the quarter, we expect to deliver healthy earnings growth on the back of a robust volume growth and a host of cost saving initiatives."

According to an analyst, requesting anonymity, “The commentary implies an expansion in Ebitda margin in Q2FY21 whereas we were building in flattish margins."

For perspective, the company’s Ebitda margin in Q2FY20 was at 19.3%.

Dolat Capital Pvt. Ltd, in a note, said, “While we expect slight erosion in gross margin due to inflationary environment, we believe Marico will register about 150-160 basis points improvement in Ebitda margins with healthy revenue growth and cost saving initiatives."

Ebitda is earnings before interest, tax, depreciation and amortisation. One basis point is one-hundredth of a percentage point.

During the June quarter (Q1FY21), revenues were hit due to the covid-19 lockdown. But Ebitda margin expansion of nearly 300 basis points to 24% in Q1FY21 was impressive to say the least. Of course, those high margins were not sustainable, as they followed a meaningful decline in advertisement and sales promotion expenses.

Marico has said, “During the quarter (Q2FY21), the company upped the investments behind brand building and advertisement spends were back to pre-covid levels."

Further, there was a partial revival of consumer sentiment, reflecting in performance across portfolio and channels. The rural market continued to perform better than urban. Marico said the distribution network has rebounded back to near pre-covid levels.

The company’s India business witnessed signs of revival in consumer demand in the core categories contributing more than 90% of the business and registered robust volume growth in the quarter. Here, the recovery in value added hair oils (VAHO) stands out, as the segment returned to a growth trajectory in Q2FY21 after a sharp decline in Q1FY21.

Additionally, the international business has clocked mid-single digit constant currency growth, which is nothing to complain about.

Based on the pre-quarterly update, Emkay Global Financial Services Ltd expects Marico to deliver close to 10% sales growth with both domestic and international (favorable currency) recording 10% growth.

Given this, it’s not surprising that investors have rejoiced, taking the stock up on Monday. Marico’s shares are nearly 8% high than its pre-covid highs in February. Based on Bloomberg data, the stock trades at about 39 times estimated earnings for FY22.