IGI Logo

In-line Q4; enhanced distribution thrust, a positive

Marico targets low double-digit growth in FY25 backed by high single-digit volume growth in the domestic business. Though its growth businesses are on the path to building profitability, re-igniting growth in core portfolio is key to realizing overall goals. Project SETU, placed to enhance domestic distribution prowess, is likely to help boost Company’s portfolio play. Unlike margin compression expected ahead amid thrust on topline, Management is looking to maintain margin with pricing actions. Though we factor-in the guidance and up our earnings (by 2%/4% for FY25E/26E), we remain skeptical on topline pushback from Marico’s margin strategy (due to high commodity linkages). As such, we maintain ADD, despite being positive on Company actions. We lift our Mar25 TP to Rs600 (from Rs570), on 42x P/E, in line with its last 5Y avg. fwd. P/E.

Domestic volume growth at 3% in Q4; enhanced topline thrust in FY25

Domestic revenue stood flat YoY at Rs16.8bn, with ~3% volume growth. In Hair Oil, Parachute’s ‘rigid pack’ sales were flat (up 53bps share on MAT basis; loose to branded conversion aided 2% vol. growth), with VAHO seeing 7% decline. Edible Oil saw a 16% fall in value, though volume grew to a mid-single digit. Total foods portfolio grew 24% YoY. For FY25, Mgmt targets for double-digit growth with high single-digit volume growth in the domestic business. As per Mgmt, premium Personal-care & Foods would grow faster and contribute to 25% of sales in FY27 vs 20% in FY24. Foods portfolio is likely to sustain 20% CAGR with enhanced margin (in the last 4Y, margin grew by 800bps). Marico has embarked on a distribution initiative under Project SETU, which is focused on increasing direct reach, from 1mn outlets now to 1.5mn outlets in coming 3 years; this will help Marico gain share across Urban and Rural. International business registered 10% constant current (CC) growth, whereas reported growth stood at 7%. Management expects to further enhance its double-digit (CC) momentum in FY25. 

Looking to hold margin with thrust on topline 

Q4 gross margin saw healthy expansion of ~415bps YoY to 51.6%. EBITDA margin at 19.4% was up by 185bps YoY, standing in line with our estimate. India margin grew by 280bps YoY to 22.4%, with international margin enhancing by 310bps YoY to 26.8%. Contrary to our expectation of margin compression ahead amid topline thrust, Mgmt stated it targets maintaining margins in the near term with expansion in the long term. As we reset our margin assumption, our earnings estimate increases 2% for FY25E and 4% for FY26E. We see 10% sales CAGR and 11% earnings CAGR over FY24-26E.

Aspiration remains high, execution key; maintain ADD

Marico’s core portfolio has high commodity linkages, wherein stability in raw material would be key. While we appreciate actions to enhance distribution, getting the right price value equation would be key for aspirations, given commodity linkages

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354