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2Q overall performance was underwhelming with weak trajectory in Parachute and Value-Added Hair Oil. Overall volumes were up +3% YoY (+7% 3-year CAGR) with good performance in Saffola portfolio (edible oils recovered driven by pricing interventions). It highlighted that the macro continues to be tough with a starker divergence between rural and urban growths. Market shares gains in key portfolio and a resilient international portfolio are key positives. There was improvement in margins (YoY) with favourable input cost and cost-control measures while highcost inventory weighed sequentially.

Marico should also start seeing the benefits of distribution expansion in both urban (chemist channel) and rural. Healthy Foods portfolio continues to trend well and is likely to provide another leg to growth (Rs8.5-10bn in FY24). The current weak macro, tough operating conditions (for edible oil) and a not-so-supportive macro (for CNO and VAHO) are near-term concerns. Success in foods and D2C portfolio is exciting. We stay believers – a conducive raw material environment will unveil the results of improved execution. ADD.

* Some improvement in volume trajectory though still unexciting: Consolidated revenue / EBITDA grew 3% / 2%, respectively. Domestic revenue grew 1% YoY with volume growth of 3% (7% on 3-year CAGR basis). There were price cuts in both Saffola and Parachute. Management highlighted continued weak demand environment, particularly rural (inflation-led). It saw better traction in urban and premium discretionary portfolio. MT and e-commerce continue to see healthy growth rates. Further, it gained shares in most of its portfolio.

* Segment performance: Parachute volumes were down 3% YoY. With the softening in copra prices (down further 4% QoQ and 20% YoY), it is driving pricing actions; soft copra slowed down share gains from the loose segment. VAHO reported a weak quarter (+2% YoY) due to downtrading and weak consumer sentiment. It has highlighted better performance in the premium sub-segment. Saffola edible oils saw a high sing-digit volume growth driven by consumer pricing interventions. The Saffola Foods franchise grew 26% YoY with good performance in the oats business and sustained traction in the recent introductions. It has re-staged honey with two new variants – Saffola Honey Active and Saffola Honey Gold. It is confident to reach Rs8.5-10bn revenues in foods by FY24E.? Segment performance: Parachute volumes were down 3% YoY. With the softening in copra prices (down further 4% QoQ and 20% YoY), it is driving pricing actions; soft copra slowed down share gains from the loose segment. VAHO reported a weak quarter (+2% YoY) due to downtrading and weak consumer sentiment. It has highlighted better performance in the premium sub-segment. Saffola edible oils saw a high sing-digit volume growth driven by consumer pricing interventions. The Saffola Foods franchise grew 26% YoY with good performance in the oats business and sustained traction in the recent introductions. It has re-staged honey with two new variants – Saffola Honey Active and Saffola Honey Gold. It is confident to reach Rs8.5-10bn revenues in foods by FY24E.

* International business: Revenue grew 11% in constant currency terms driven by broad-based performance across geographies - Bangladesh (+10% in CC), South East Asia (+10% in CC) and continued performance in MENA (+11% in CC) and South Africa (+16% in CC). It highlighted that, in Bangladesh, the baby care and shampoos continue to supplement growth in the core franchises.

* Margins improve: Consolidated gross margin expanded 120bps YoY to 43.6% while the sequential contraction was due to consumption of higher cost inventories and currency depreciation. There was some softening in copra and rice bran prices – copra price was down 4% QoQ and 20% YoY and rice bran oil was down 11% YoY and 15% QoQ, while LLP and HDPE prices were up (YoY) by 48% and 20%, respectively. The management categorically said that they expect the (domestic) copra prices to remain range-bound with season supplies going down. Consolidated EBITDA margin was marginally down to 17.3%. Ad-spends were normalised with 10% YoY increase. It continues to expect EBITDA margins of 18- 19% for FY23.

*Valuation and risks: We cut our earnings estimates by ~3-2% for FY23-24E; modelling revenue / EBITDA / PAT CAGR of 9 / 15 / 15 (%) over FY22-24E. Maintain ADD with a DCF-based revised target price of Rs570 (was Rs550 earlier). At our target price, the stock will trade at 46x P/E multiple Mar-24E. Key downside risk is higher-than-expected inflation in copra prices.

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