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Penetration-driven growth and market share gains are DCF-accretive; BUY

4Q volumes grew 25% (~20% adjusting for base) - an outperformance. Significant market share gains and sustained growth momentum in near-total portfolio is pleasing. We like its strategy of prioritising market share / volume growth over margins. In India, a “growth market”, investors tend to (rightly) ignore short-term profit sacrifice, provided the trajectory of volume outperformance is clear (as it’s DCF-accretive).

Also, we like the distribution expansion plans in both urban (chemist channel) and rural (indirect to direct conversion and expanding footprint by another 25%). New launches in (healthy) foods portfolio is likely to provide another leg to growth (targeting ~Rs4.5-5bn revenue in FY22 and ~Rs8.5-10bn in FY24 (target of ~Rs3bn in FY21 achieved)). A resilient international portfolio adds to potential outperformance in India. We stay believers. Our stock rating moves up a notch to BUY (from ADD); revised target price of Rs500.

* Broad-based revenue growth: Consolidated revenue / EBITDA / recurring PAT grew 34% / 13% / 17%. Domestic revenue grew 37% driven by 25% volume growth (2-year CAGR of 10%; management said adjusting for the lower base volume growth was ~18-20%) with continued improving consumer sentiment. This performance was led by strong GT performance in rural (+42% volume growth) growing 1.8x of urban (+23% volume growth). E-commerce grew by 81% (contributes to ~8% of business) while Modern Trade declined (-17% YoY) due to higher base driven by pantry stocking in Mar’20. CSD also grew by 59% on a lower base.

* Segment performance: Parachute revenue grew 38% with 29% volume growth driven by market share gains as it partially absorbed input cost inflation. Value added hair oils (VAHO) continued its third consecutive quarter of volume growth (+22% volume and value both). Saffola edible oils continued its strong performance (+17% volume, +43% value) on a high base, benefitting from increased penetration. In other categories, healthy foods grew 134% (oats grew ~84%) while Premium personal care segment witnessed sequential recovery with modest volume decline. Saffola Honey is also performing well with ~double-digit market shares in MT and ~25% market share in e-commerce where the category is over-indexed.

* International business: Revenue grew 23% in constant currency terms (+25% reported) driven by broad-based performance across geographies - Bangladesh (+20% in CC) and continued performance in South Africa (+48% in CC), South East Asia (+13% in CC), MENA (+62% in CC).

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