PL First Cut - Marico 3Q24 - Demand remains muted, margins expansion led by lower commodity basket

*PL First Cut – Amnish Aggarwal – Head of Research - Prabhudas Lilladher Pvt Ltd*

Marico 3Q24 – Demand remains muted, margins expansion led by lower commodity basket

(CMP: Rs516.55| Mcap:Rs 66.7bn | Rating:Hold)

Financial highlights

> Revenues declined by 1.9% YoY to Rs24.2bn (PLe: Rs23.9bn)

>Volume Growth: overall domestic volumes up 2%, Parachute rigid volumes grew by 3% (PLe: 3%), Saffola declined mid- single digits and VAHO sales increased 3%

>Gross margins expanded by 634bps YoY to 51.3% (Ple: 50.0%)

>EBITDA grew by 12.5% YoY to Rs5.1bn (PLe:Rs 5.07bn); Margins expanded by 272bps YoY to 21.2%(PLe:21.2%)

>A&P Spends expanded by 125bps YoY to 10.2%

>Adj PAT grew by 15.9% YoY to Rs3.9bn (PLe:Rs3.6bn), as tax rate at 22% was 260bps lower than estimates

Other Updates

>Value added hair oil registered 3% volume growth amid slower rural demand

>Saffola franchise witnessed mid-single digit volume decline & mid-twenties revenue decline led by price cuts taken over past 12 months.

>Food continue to perform well with revenue growth of 18% YoY.

>Premium Personal Care sustained its strong double digit growth trajectory during the quarter

>Copra prices stayed at lower levels, but exhibited some upward bias.

>IBD delivered mid-single digit CC growth amidst macro-economic headwinds in Bangladesh market, while rest of the geographies held strong

>Marico purchased an additional 18.54% stake in Satiya Nutraceuticals Private Limited . Thereby increasing its total stake to 51.38%

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Marico witnessed a revenue de-growth on account of subdued volumes (2% in domestic business, 6% CCG in IBD) and decline in realisation due to price cuts. However, margins expanded due to lower input cost prices and part of gains were used to ramp up A&P spends by 125bps. Marico expects positive revenue growth in 4Q along with GM expansion ~450-500bps YoY & highest ever operating margin expansion of ~250bps in FY24. We expect a gradual uptick in consumption trends led by improving macro-economic indicators, continued govt spending & conducive consumer pricing across categories due to low input costs. We have a Hold rating on the stock.

Stock trades at 37.9x FY26 EPS