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Adding more growth levers to core brands, margin headwinds to recede; reiterate BUY

Result Highlights

* Revenue – 35% growth in domestic business with 21% volume growth, 21% CC growth in international business driving 31% consolidated revenue growth (2‐yr CAGR of 8%).

* Margins – 890bps GM decline (copra, rice bran oil, LLP, HDPE inflation) leading to 530bps EBITDA margin decline to 19%, 320bps sequential margin improvement indicating bottom is behind, 27% growth in A&P spends.

* Growth by verticals – 12% volume and 20% value growth in Parachute on base of 11% and 12% decline, 34%/35% volume/value growth in VAHO on base of 30% and 32% decline and 24% volume and 60% value growth in Saffola on base of 16% volume and value growth; , premium personal care especially Livon reviving well.

Valuation and view –

1Q was a strong testament of the essential nature and pricing power of MRCO’s brands with strong broad‐based growth momentum despite significant price hikes in Parachute and Saffola. While VAHO business retained market share, gains were seen in Parachute and Saffola. The premium personal care portfolio also recovered well while the foods business set to clock a Rs 5bn turnover in FY22 (in a Rs 50bn addressable market) aided by entry in new segments like honey, noodles and soya chunks. Company is also paying special attention to the digital‐first business with an aspiration of reaching Rs 4.5‐5bn revenue by FY24 via organic and inorganic means. Margins were impacted as the company absorbed some part of commodity inflation which should normalize in 2H. While growth momentum should sustain with higher pricing contribution in FY22 led by aggressive expansion in rural stockist network and eCom/MT channels, margins seem to have bottomed out in 4Q and should sustain around 19‐20% as commodity inflation cools off. The international business also seems to be on a strong wicket although the pandemic has started impacting Bangladesh and Vietnam towards the end of the quarter.

MRCO looks well placed to deliver on its medium‐term aspiration of 13‐15% growth with 19‐20% margins given multiple levers like share gain possibilities in Parachute portfolio, strong momentum for Saffola edible oils and foods portfolio, recovery in international markets and continued strengthening of distribution and digital infrastructure. We model in revenue/EBITDA/PAT CAGR of 14%/15%/15% over FY21‐24E and reiterate BUY rating with a PT of Rs 628 based on 45x FY24E EPS, a 10% premium to its 5‐yr average multiple and in‐line with the multiples given to peers like GCPL, Tata Consumer and Dabur.

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