By Nuvama estimates
Marico, India’s leading consumer goods company reported its Q4FY23 results which showed a y-o-y revenue growth of 3.7%, Ebitda growth of 13.6%, and PAT growth of 20.3%, exceeding the analyst’s estimates, but below the consensus. The domestic business volumes increased by 5% y-o-y, but value growth was only 2% y-o-y due to price cuts in Parachute coconut oil and Saffola edible oil, which resulted in a 9% y-o-y decline in the Saffola franchise. On the other hand, Parachute volumes increased by 9% y-o-y, with a market share gain of 70 bps. The international business grew by 16% y-o-y in constant currency (CC) terms. Although the easing of raw material prices is a positive sign, the volatile oil prices, El-Nino, and growth revival remain significant factors to watch out for. As a result, the EPS estimates for FY24E/FY25E were lowered by 2%/2.2%, and the target price was revised to Rs 559.
What we like: 90% of the portfolio saw market share gains. Company’s gross profit and Ebitda margins have increased. The expansion of these margins is attributed to lower raw material prices and a favourable product mix in the domestic market. Marico’s multi-brand tyre outlets and e-commerce channels are contributing significantly to its sales in the domestic market. Sales has increased to 29% in FY2022-23, and the growth rate of sales through these channels in Q4 of that year was in double digits.
Saffola foods grew 18% y-o-y while Saffola oats franchise continued to maintain is leadership with 43% value market share. Parachute posted 9%/3% volume/value growth led by stable consumer and copra prices.
What we do not like: Saffola franchise declined 9% y-o-y in Q4FY23 on account of lowteen revenue fall in edible oils. General trade (GT) saw low-single-digit decline. Going forward normal monsoons remain critical for rural sentiment to pickup, which is unlikely.
Marico anticipates a mid to high-single-digit growth in the Saffola franchise in FY24, and a double-digit growth in value-added hair oils (VAHO) over the next three years through a broad-based approach. It faces intense competition across categories. Furthermore, challenges from inflationary pressures and rainfall shortage in populous states remain key variables to watch out for.