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In 4QFY23, Marico Ltd. (Marico) posted a decent volume (domestic volume growth on a 4? year CAGR basis stood at 6%) and margin performance (consol. gross margin expanded ~250bps QoQ) supported by sustained recovery in consumption trends and moderation in input inflation. Important to note that, for the sector, while Packaged Foods has been resilient, HPC category is moving into the positive territory after six quarters. International business continues to do well for Marico (constant currency growth [CCG] of 16%) even as currency devaluation had a higher impact in 4Q. Going ahead, expect a gradual uptick in India revenue growth for Marico as pricing interventions come into the base in 1HFY24. This along with easing input prices and favorable mix should also drive >100bps of EBITDA margin expansion. There is minor change to our FY23E/FY24E EPS, and we continue to maintain our ADD rating with an unchanged target price (TP) of Rs570.  

Result Highlights (Consolidated)

4QFY23 headline performance: Revenues grew by 3.7% YoY to Rs22.4bn. EBITDA grew by 11% YoY to Rs3.9bn. Adjusted PAT (APAT) after MI was up ~12% YoY. ? Domestic revenues were up just 1.8% YoY (with 5% volume growth; volume growth on a 4?year CAGR basis stood at 6%.). International business posted growth of 9.9% YoY (constant currency [CC] growth of 16%).   ? Gross margin came in at 47.4% (+290bps YoY & +250bps QoQ) given the moderation in key commodity prices and favorable portfolio mix in the India business. EBITDA margin stood at 17.5% (up ~120bps YoY). ? FY23 performance: Revenue, EBITDA and APAT grew 2.6%, 7.2% and 4.5%, resp. Gross margin up 230bps YoY to 45.2% while EBITDA margin up 80bps YoY to 18.5%.

Key Conference Call Highlights

(1) Domestic: Urban consumption has remained steady in the past few quarters; however, signs of visible buoyancy are awaited. The rural sector has most likely bottomed?out as the declining trend reversed in this quarter.

(2) Domestic Foods grew 18% in 4QFY23 to close near the Rs6bn revenue mark in FY23. Expect the franchise to close above the Rs8.5bn revenue mark in FY24.

(3) Copra prices should remain range bound with a downward bias in the near?term as the flush season begins.

(4) International: Expect Marico’s international business to maintain double?digit CCG momentum with all markets performing.  

View & Valuation

We are currently building ~10.9% revenue CAGR over FY23?FY25E led by (a) Recovery in volume growth for the core portfolio as prospects for a sustained recovery in consumption trends strengthened in 4QFY23. This also with pricing interventions coming into the base in 1HFY24 should translate in better revenue growth. (b) Consistent uptick in revenue share of Foods, Premium Personal Care and Digital?first brands driven by innovations, step?up in market development, brand building spends and focused GTM initiatives. Management expects to take this portfolio to be a ~20% mix in FY24 from ~15% currently. (c) International business to continue to maintain double?digit CCG momentum.    At operating level, we expect ~15.7% EBITDA CAGR over FY23?FY25E (~160bps EBITDA margin expansion as we expect gross margin to expand by 280bps over FY23?FY25E led by easing input cost and mix improvement). Marico is currently trading at ~42x/37x on FY24E/FY25E EPS as we build in ~15.3% EPS CAGR over FY23?25E. Dividend payout remains high and return ratios are also expected to improve over the next few years. There is minor change to our FY23E/FY24E EPS. We continue to maintain our ADD rating with an unchanged target price (TP) of Rs570, valuing it at ~48x March’2024E EPS (implied Mar’25E PE multiple of ~43x; 3yr/5yr avg fwd. multiple: ~46x/45x).

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