MUMBAI : Marico Ltd’s shares rose almost 10% on National Stock Exchange on Monday, touching a new 52-week high of Rs452.50 apiece. This is despite the fact that the March quarter consolidated earnings before interest, tax, depreciation and amortization (Ebitda) margins contracted by 300 basis points year-on-year to 15.9%. One basis point is one-hundredth of a percentage point. Ebitda margin is the lowest in 20 quarters, point out analysts from Jefferies India Pvt. Ltd.

Note that savings in other expenses, which were lower as a percentage of revenues, did soften the blow at the Ebitda level. Gross profit margins have contracted as much as 520 basis points owing to higher price of copra and rice bran oil.

So, if margins have declined significantly, what are investors excited about? The simple answer to that is that the worst is probably over on the margin front. Prices of copra, a key raw material for Marico, have corrected by about 15% from its recent highs. Plus, the company has taken another 15-20% price hike in Saffola in April.

In a report on 30 April, analysts from JM Financial Institutional Securities Ltd said, “Management opined that March quarter’s 15.9?itda margin is the bottom; guidance for FY22 is more around 18-19% for now." For perspective: Ebitda margin for financial year 2021 stood at 19.8%.

Jefferies’ analysts said in a report on 30 April, “Management commentary was positive and focus remains on growth, notwithstanding near-term volatility due to pandemic."

Marico’s India volume growth was robust at 25% in the March quarter. True, a favourable base helped to that extent given that domestic volume had declined by 3% in the March 2020 quarter. Given the base effect, looking at the two-year compounded annual growth rate (CAGR) trends may be helpful. Jefferies’ analysts said two-year CAGR at 10% was also impressive.

In terms of value growth, Saffola (refined edible oils) and parachute coconut oil (rigid packs) performed relatively better than value-added hair oils. JM’s analysts said, “Saffola’s volume performance stood out given the strong base that it had to contend with, more so given a steep 30% price-hike taken during the last 6M in a bid to offset input-costs pressure therein." Saffola’s volumes increased by 17% last quarter.

Marico’s overall revenue growth was strong at 34% year-on-year, which also aided Ebitda growth of 13% during the quarter, despite margin contraction. So far so good.

The re-rating in Marico’s shares on Monday suggests investors have factored in most positives for now. Currently, the stock trades at nearly 45 times estimated earnings for financial year 2022, based on Bloomberg data.