IGI Logo

Saffola and VAHO shine; miss on margin

Marico's 3Q was a mixed bag- while revenue was ahead of expectations, margin was a miss (in-line EBITDA). Domestic recovery was broad-based. PCNO continued its steady growth momentum, while VAHO saw an improved demand towards the top end of the pyramid. Saffola sustained its growth, aided by improved penetration. The International business saw recovery, led by SAARC and MENA markets. However, high RM inflation impacted margins sharply despite the improved product mix. Marico ramped up its A&P expenses as the company continued to be aggressive in new launches, but cost-saving initiatives in other areas limited the dip in EBITDA margin. We expect the growth momentum to sustain, and the pressure on margins to ease in FY22 owing to muted RM inflation and cost savings. We marginally increase our EPS estimates for FY22/FY23. We value Marico at 40x P/E on Mar-23E EPS to derive a target price of Rs 460. Maintain ADD

* Robust 18% domestic growth: Revenue grew by 16% YoY (-2% in 3QFY20 and +9% in 2QFY21), vs expectation of 11% YoY growth, led by 18% YoY Domestic growth. Domestic volume grew by strong 15% YoY (-1% in 3QFY20 and +11% in 2QFY21). PCNO saw 9/8% YoY value/volume growth while VAHO saw 21% YoY growth driven entirely by volumes. Saffola value/volume grew by 26/17% YoY. Premium Personal Care portfolio continued its recovery and reduced the decline to 4% YoY. Foods grew by 74% YoY while Oats saw 50% YoY growth. GT growth in rural/urban stood at 24/10% YoY. MT recovered to pre-COVID levels while e-commerce posted strong 88% YoY growth. However, CSD declined by 10% YoY.

* Bangladesh driving international: International clocked 11% YoY growth, led by 8% CC growth. Bangladesh continued its strong performance with 15% YoY cc growth, and non-coconut portfolio saw 27% growth. MENA/South East Asia continued to struggle with cc decline of 1/3% YoY. South Africa/Other geographies saw 7/16% YoY cc growth.

* RM inflation impacts margin: GM dipped by 223bps YoY (+282bps in 3QFY20 and -163bps in 2QFY21), vs expectation of a dip of 82bps YoY, due to high RM inflation (Copra/LLP/HDPE were up 26/12/18% YoY). Employee/ Advertising/Other expenses grew by 28/4/9% YoY. EBITDA margin contracted by 99bps YoY to 19.5% (+170bps in 3QFY20 and +26bps in 2QFY21). EBITDA grew by 11% YoY (HSIE 12%). Domestic EBIT margin dipped by 162bps YoY while International margin expanded by 25bps YoY. PBT grew by 10% YoY while PAT grew by 13% YoY.

* Call takeaways: (1) 65% of Saffola’s growth was driven by increased penetration; (2) Saffola honey achieved >20% market share in e-comm; (3) ecomm revenue mix grew to 8%; (4) Foods revenue reached Rs 3.25bn in FY21 and is expected to reach Rs 4.5bn in FY22; (5) working capital days reduced to 23 days vs 35 days earlier, and can sustain at around 23-25days.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.hdfcsec.com/article/disclaimer-1795

SEBI Registration number is INZ000171337

Above views are of the author and not of the website kindly read disclaimer