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Macro view: Commodity inflation moderate; normal monsoon expected

* The demand trends in the consumer sector remained stable throughout the quarter, although it is not evident whether there was any sequential improvement.

* The urban market has been stable while recovery in rural demand remained elusive.

* Gradual recovery in rural demand is expected during the year, led by moderating headline inflation, hike in MSPs, easing liquidity pressures, and forecast of a near-normal monsoon.

Consolidated revenue declined marginally during the quarter

* Consolidated revenue declined in low-single digits on a YoY basis, primarily due to pricing interventions in key domestic portfolios last year as well as additional pricing reductions in Saffola Edible Oils (amounting to a pricing decline of ~30% YoY) during the quarter

International business: High single-digit growth in constant currency terms

* In 1QFY24, MRCO’s international business maintained its healthy growth momentum, achieving high single-digit constant currency growth.

* International markets exhibited resilience in a volatile global operating environment.

Costs and margins: Gross margin to expand

* RM costs – Copra prices remained in the favorable zone. Crude derivatives remained firm and edible oils declined sharply.

* Moderating RM cost would lead to expansion on gross margin both YoY and sequentially.

* A&P spends continued to increase for strategic brand building of core and new categories.

* Expansion in operating profit is expected to drive double-digit growth in the bottom line.

Segments

* The volume of Parachute Coconut Oil experienced a slight decline.

* VAHO remains flattish.

* Saffola Oils posted low double-digit volume growth. The performance of domestic business was affected by significant trade destocking during the quarter, primarily due to a sharp fall in vegetable oil prices and channel inventory adjustments in core portfolios.

* Foods segment is scaling yup well.

* Premium Personal Care including digital First Portfolio remains steady

Valuations

The company has achieved ~9.8% CAGR over FY18-23E and is expected to achieve ~15-17% over FY23-25, led by: a) volume growth b) improvement in brand image of core franchises, b) higher growth in the food portfolio and premium personal care segment. With attractive valuations and a healthy return on equity, we reiterate our BUY rating with a target price of INR610.

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