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Strong growth despite lockdown

Headquartered in Mumbai, Marico Limited is a leading Indian FMCG company with exports to over 25 countries. The company’s product portfolio includes brands such as Parachute, Saffola, and Livon.

* Q1FY22 revenue rose 25.5% QoQ (+31.2% YoY) on strong volume and demand growth in both domestic and international markets.

* EBITDA margin expanded 310bps QoQ to 19.0% helped by higher sales realisations and better product mix. Resultantly, Adj. PAT rose 49.6% QoQ (+12.3% YoY) despite higher tax outflow during the quarter.

* Displaying resilience, Marico reported strong all-round performance in the midst of a quarter impacted by a lockdown-induced slowdown. Company witnessed ample recovery in margins and we expect further improvements from current levels in the coming quarters. Maintaining a positive outlook, we upgrade our rating on the stock to BUY with a revised target price of Rs. 590 based on 50x FY23E adj. EPS.

Volumes and demand growth aids topline

During Q1FY22, Marico reported a broad-based recovery on the back of revival in consumer sentiments despite impairment in mobility brought upon by lockdowns during the quarter. Topline grew 25.5% QoQ to Rs. 2,525cr (+31.2% YoY), with a 21% YoY underlying volume growth in the domestic business and 21% YoY growth in constant currency terms in the international business. India sales grew 26.6% QoQ to Rs. 1,992cr (+34.6% YoY) owing to demand recovery leading to growth in ASP. Meanwhile, International business recorded sales of Rs. 533cr (+21.7% QoQ, +19.8% YoY), aided by volume growth as COVID impact remained largely restricted compared to prior quarter.

Margins rebound on higher sales realisations

Despite hike in consumption costs of raw materials such as copra, edible & vegetable oils, and crude, EBITDA recovered sequentially rising 50.8% QoQ to Rs. 481cr (+3.0% YoY) benefiting from higher sales realisations with better product mix and higher volumes as consumer demand continued to grow despite the pandemic. EBITDA margin improved 310bps QoQ to 19.0%, partially impacted by operating leverage. Adjusting for exceptional items, PAT grew 49.6% QoQ to Rs. 356cr (+12.3% YoY).

Key concall highlights

* Management expects gradual sequential improvements in gross margins from Q2FY22 onwards and to eventually settle down in the second half.

* Value Added Hair Oils (VAHO) portfolio recorded 34% YoY growth in volumes; Parachute saw 12% volume growth with an 80bps increase in market share.

* Saffola portfolio (edible oils and foods) reported 24% volume growth and 60% value growth on YoY basis.

* Company expects overall volumes to grow 5-7% during FY22.

Valuation

Company benefited from a 13% sequential drop in prices of one of its major inputs (i.e. copra) during Q1FY22. With impact of second wave seen to be reducing in the domestic market, along with demand revival, we expect margins to improve further in the coming quarters. Internationally, premiumisation of portfolio with diversification push towards sales of high margin products should aid company performance further. We expect 14% CAGR earnings growth over FY21-23E. With positive outlook, we upgrade our rating to BUY with a TP of Rs. 590 based on 50x FY23E Adj. EPS.

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