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Broadly in line with volume and EBITDA expectation

Highlights from MRCO’s 3QFY23 pre-quarterly update

Macro view: Urban demand continues to grow steadily

* The consumer sector witnessed some demand uptick, which was more visible in specific categories, fuelled by the festive season and oncoming winter season.

* Urban – Urban and premium categories maintained their steady pace of growth.

* Rural – Rural demand was not discernible as retail inflation continued to be at elevated levels.

* Management expects that easing of input costs, along with higher crop realization and ongoing government interventions, augurs well for the sector and may boost demand sentiments.

3QFY23 performance: Consolidated revenue grows in low-single digits

* Consolidated revenue recorded marginal YoY growth (low single-digits) during the quarter.

* India: India business improved slightly sequentially with mid-single digit volume growth.

International business: High single-digit constant currency growth

* In 3QFY23, MRCO’s international business continued its healthy growth momentum with high single-digit constant currency growth.

* Despite challenging macros, Bangladesh is maintaining its steady growth trend.

Costs and margins: Operating margin to improve

* Both gross margin and operating margin may improve sequentially as well as YoY.

* Operating profit to grow modestly YoY.

Segments

* Parachute Coconut Oil volume to grow in low single digits during the quarter. Visible recovery witnessed in the month of Dec’22. Copra prices started to inch up in off-season.

* VAHO continues subdued performance, a reflection of torpid rural and mass personal care category sentiment.

* Saffola Oils posted low teen volume growth and the whole Saffola franchise grew in double digits YoY.

* Foods segment is continuing its strong runway.

* Premium Personal Care witnessed double-digit growth.

Valuations appear inexpensive, given strong earnings potential and healthy ROE

* After achieving ~6% sales CAGR over FY15–20, MRCO's sales momentum has improved with double-digit sales CAGR expected over FY20–24. This is likely to sustain beyond FY24 as well, propelled by: a) the ongoing topline growth momentum in each of MRCO’s core segments, b) significantly higher growth rates as well as targets in the Foods portfolio, and c) the INR4.5–5b targeted from its 'digital first' range of products.

* The much-needed diversification could lead to higher multiples than in the past. Valuations at 53.4x/43.5x FY23E/FY24E EPS appear inexpensive, given the potential of strong earnings growth (v/s earlier) and a healthy ROE in late 30s%. We reiterate our BUY rating on the stock with a TP of INR595.

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