PL Stock Report: Marico (MRCO IN) - Q1FY24 Result Update - Factors in volume and margin recovery - Downgrade to 'HOLD'

Marico (MRCO IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs574 | TP: Rs581

Q1FY24 Result Update - Factors in volume and margin recovery

Quick Pointers:

§ Copra prices down 7.3% YoY and 5.9% QoQ

§ Volumes impacted by one-offs – trade destocking & scheme rationalization

We are increasing our FY24 EPS estimates by 3.3% given benign RM basket along with higher EBIDTA margin guidance of >20% in FY24 and downgrade the rating to ‘hold’ from Accumulate. While we expect volume growth (3% in 1Q24) to improve sequentially, rural recovery is slightly uncertain due to adverse weather conditions. MRCO has acquired PLIX, as it aims for 20% of sales from premium personal care and foods portfolio in FY24. Further, volumes are expected to recover while price deflation will wane off gradually.

We believe MRCO is well placed given 1) benign input cost environment led by copra, edible oils and LLP 2) sustained innovation with launch of peanut butter and Munchies in foods 3) slew of B2C acquisitions in wellness and premium personal care and 4) expected recovery in IBD led by ME and expected currency stability in Bangladesh. We expect Sales/PAT CAGR of 10.2%/14.0% over FY23-25. We value MRCO at 43xJun25 EPS and assign a target price of Rs581 (Rs550 earlier based on 42xMar’25 EPS). Given a sharp 16% appreciation in stock price in less than 2 months since our upgrade and limited upside, we cut rating from Accumulate to Hold.

Sales decline 3.2%, GM expands by 257bps QoQ: Revenues declined by 3.2% YoY to Rs24.8bn (PLe: Rs24.9bn). Gross margins expanded by 494bps YoY/257bps QoQ to 50% (PLe: 52.0%). EBITDA grew by 8.7% YoY to Rs5.7bn (PLe: Rs 5.7bn); Margins expanded by 253bps YoY/563bps QoQ to 23.2% (PLe:23.0%). A&P Spends expanded by 78bps YoY to 8.6%. Adj PAT grew by 15.6% YoY to Rs4.4bn (PLe: Rs4.2bn). Domestic volumes up 3% (PLe: 3.0%), Parachute volumes declined 2%, Saffola Edible Oil volumes grew in low double digits. IBD grew 9% in CC, led by 9% growth in Bangladesh, 5% in South East Asia, 37% in South Africa and 15% in MENA.

Concall takeaways: 1) Urban market led the growth, while rural was subdued 2) GT declined in mid-single digit with MT/E-comm growth in double digits 3) Volumes were impacted by one-offs such as trade destocking & final phase of trade rationalization schemes. 4) Copra prices are expected to remain rangebound in the near-term, as seasonal supplies slow down and festive demand picks up 5) Premium personal care (incl D2C portfolio) is expected to contribute ~10% of domestic revenues in FY24 6) Expect to reach Rs8.5bn revenues in Foods in FY24 led by market development, brand-building and focused GTM initiatives 7) Current run rate for Plix stands at Rs1.5bn with low cash burn. Synergies expected in distribution and cross selling across D2C brands like Beardo 8) Revenue growth expected to turn positive in 2H24m as price deflation bottoms out 9) Gross margins are expected to improve by 200-250bps YoY in FY24, due to softening of copra prices, while EBITDA margins are expected to improve by more than 150bps in FY24. 10) Expect gradual recovery in rural markets, but unseasonal weather could delay the recovery.

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