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Marico’s 4QFY23 report was on expected lines, and management sounded confident as far as FY24 outlook goes with VAHO possibly being the only question-mark given some level of dependence on rural recovery for a full-blown revival therein. Gross margin picture for FY24 is pretty buoyant and the company is guiding for a potential benefit of 200-250bps. While part of the GPM cushion would understandably be deployed to take A&P spends up to >9% of sales (vs 8.6% in FY23), our calculations suggest likelihood of EBITDA margin touching the 20%-mark in the coming year considering that there is no other cost-item that could possibly eat into the same. We believe Marico is well-placed to drive a mid-to-high teens operating profit growth in FY24. Valuations are not as demanding with the stock now trading below its five-year average.

* Mostly inline quarter: Marico’s sales, EBITDA and net profit grew 3.7%, 13.6%, 20.3% to INR22.4bn, INR3.9bn and INR 3bn. Operating performance was mostly on expected lines with domestic volume growth of 5% offset by pricing-softness in two of the three large categories. The emerging businesses continue to track well and are now c.15% of India revenue; management is targeting 20% for FY24E. On profitability front, gross margin (+294bps) did better than we envisaged but scale-deleverage and higher staff costs led to lower flowthrough to EBITDA. Higher other income (+183%) included a one-time gain from sale of land overseas, which led to a c.9% beat vs our bottomline forecast.

* Parachute franchise did well while Saffola edible-oils declined during the quarter: 1) Saffola edible-oils’ revenue declined in low-teens with volumes down mid-single digit due to some sort of a base-effect at play. Price corrections undertaken through earlier part of FY23 continued to be a drag on value-growth. Given that offtakes have been reasonably steady, management expects volume growth to be good for FY24E. 2) Parachute rigids’ revenue grew just 3% due to the impact of price-cuts implemented in the portfolio. Volume growth was higher and reflects a healthy improvement (+9% in Mar-Q vs +2% in Dec-Q) as loose-to-branded conversion picked up pace following a more stable copra price regime; penetration gains on the back of micro-marketing initiatives in certain markets also helped. 3) VAHO sales grew c.13% after several quarters of tepid performance. Management cited bottoming-out of rural weakness, competition getting more rational at mass-end, and internal initiatives to drive mid-premium brands as the contributory factors here. 4) Newer businesses continued to track well - Foods business grew 18% and Digital-First brands are targeting an FY24-exit-run-rate of INR 4bn. With scale being achieved, the focus now would also be on improving the profitability profile of this cohort. 5) International business did well and grew 16% in CC terms. Double-digit growth momentum is expected to continue in FY24E

* Gross margin progression was better than we envisaged: Gross margin surprised positively at 47.4% vs JMFe 46.4% - this was 294bps higher yoy and also 247bps better qoq. Moderation in the costs of some of the key inputs and a more favourable portfoliomix in the India business helped during the quarter. A&P spends were up only marginally (+2.9% yoy) during Mar-Q but expected to see a quantum jump in FY24E. Scale deleverage due to selling-price-unwinding, however, led to a slower pace of expansion in EBITDA margin which was 153bps higher yoy at 17.5%.

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