PL Stock Report: Marico (MRCO IN) - Q2FY24 Result Update – Volumes impacted amid slow rural recovery - HOLD
Prabhudas Lilladher Pvt Ltd
Marico (MRCO IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd.
Rating: HOLD | CMP: Rs532 | TP: Rs556
Q2FY24 Result Update – Volumes impacted amid slow rural recovery
Quick Pointers:
§ Copra prices are down 2% YoY, but up 1% QoQ
§ Volumes impacted by subdued consumer sentiments.
We are cutting FY24/FY25 EPS estimates by 0.9/6.7% given tepid consumer demand in rural India and local competition in core categories. 2Q24 results were in line with 3% volume growth and 17.3% PAT growth driven by 280bps margin expansion. MRCO expects Parachute volume growth to recover as expected increase in copra prices will help gain some share from unorganized players post 3Q. VAHO will continue to remain under pressure given heightened competition from not only unorganized players but some large players also.
Innovation funnel remains strong as MRCO has launched hair and Care Shampoo, Parachute Advanced oil with superfoods, Saffola peanut butter and Mayonnaise, Livon Curl cream, Style pro and Parachute Body wash. Strong innovations, success in foods and B2C acquisitions will enable the company achieve the targeted 20% of sales from these in FY24. We believe EBIDTA margins will peak out in FY24 which will curtail Sales/PAT CAGR to 9.2%/10.7% over FY23-26. We value MRCO at 43xSept25 EPS and assign a target price of Rs556 (Rs581 earlier based on 43xJune’25 EPS). Although MRCO has corrected 11% from peak, it lacks near term triggers. Retain Hold.
Sales decline 0.8%, GM expands by 685bps YoY: Revenues declined by -0.8% YoY to Rs24.8bn (PLe: Rs24.9bn). Volume Growth: Parachute up 1% (PLe: 2.5%). Gross margins expanded by 685bps YoY to 50.5%. EBITDA grew by 14.8% YoY to Rs5bn (PLe: Rs 4.9bn); Margins expanded by 272bps YoY to 20.1% (PLe:20.0%). A&P Spends expanded by 229bps YoY to 10.8%. Adj PAT grew by 17.3% YoY to Rs3.6bn (PLe: Rs3.5bn). Declared interim dividend of Rs3/share.
Concall takeaways: 1) Urban market remains resilent, while rural was subdued 2) July demand was positive, however August and September dragged the performance amid lower than expected rainfall 3) GT declined in low-single digit with MT/E-comm grew by 20% 4) Volumes were impacted by subdued demand and intensified competition from local player specially under VAHO category. 5) Copra prices are expected to inch up in near term as it enters off-season and festive demand picks up 6) Premium personal care (incl D2C portfolio) is expected to contribute ~10% of domestic revenues in FY24 7) Food business is doing well and is on course to achieve FY24 revenue targets led by market development, brand-building and focused GTM initiatives 8) Current run rate for Plix/Beardo/Just herbs stands at Rs1.5bn/1.5bn/1bn with low cash burn. 9) New launches such as honey and soya chunks is gaining good traction with new categories of peanut butter, mayonnaise performing well. 10) Gross margins are expected to improve by 300-350bps YoY in FY24, due to softening of copra prices, while EBITDA margins are expected to improve by more than 200bps. 10) Expect gradual recovery in rural markets led by upcoming festive season and stable inflation.