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Volume improvement crucial in FY25 for double-digit growth

Marico Ltd. (MRCO) 3QFY24 consolidated performance was a mixed bag. Revenue for the quarter was impacted by soft demand environment, stock reduction in general trade (GT) to support channel for better future growth, flow through of earlier price corrections taken in domestic core and transient macroeconomic headwinds in Bangladesh. While margins surprised us positively led by softer input costs and favourable portfolio mix. Management has further upped its FY24 margin expansion target and will now be touching highest ever FY EBITDA margin of ~21%. Even as management is confident of double-digit earnings growth in FY25, volume recovery becomes extremely crucial with margins at peak levels, signs of which are still not clearly visible. Maintain ADD rating with a revised target price (TP) of Rs605.

3QFY24 Result Highlights (Consolidated)

Headline performance: Revenue was down by 1.9% YoY to Rs24.2bn (vs est. Rs25.4bn). EBITDA grew by 12.5% YoY to Rs5.1bn (vs est. Rs4.9bn). Adjusted PAT (APAT) after MI was up 16.8% YoY to Rs3.8bn (vs est. Rs3.5bn).

Domestic revenues were down 3.1% YoY (with 2% volume growth). EBITDA margin up by ~310bps YoY to 22.8%. International business posted growth of just 1.6% YoY (constant currency [CC] growth of 6%) with EBITDA margin up 320bps YoY to 26.1%.

Gross margin surprised us positively and came in at 51.3% (+630bps YoY & +80bps QoQ) owing to moderation in RM prices and favourable portfolio mix. Higher operating overheads meant that EBITDA margin came in at 21.2% (up 270bps YoY; vs our est. 19.5%).

9MFY24 revenue down 2% YoY while EBITDA and APAT have grown by 11.8% and 15.2% YoY, respectively. Gross/EBITDA margin up 600bps/260bps YoY to 50.6%/21.5%, respectively.

Near term outlook

(1) Consolidated revenue growth is expected to move into positive territory in 4QFY24 as base catches up. Can expect low-teen profit growth with double digit revenue growth in FY25.

(2) EBITDA margin now expected to expand by ~250bps in FY24 (led by ~450-500bps expansion in gross margin) and will reach highest ever level of ~21%.

View & Valuation

We are currently building ~10.8% revenue CAGR over FY24E-FY26E led by (a) Recovery in volume growth for the core portfolio. Current price corrections becoming hikes in FY25 with expected inflation. (b) Consistent uptick in revenue share of Foods, Premium Personal Care (including the Digital-first portfolio) driven by innovations, step-up in market development, brand building spends and focused GTM initiatives. (c) Healthy momentum in international business. We expect ~12.1% EBITDA CAGR over FY24E-FY26E (~50bps EBITDA margin expansion as we expect gross margin to expand by just 20-30bps over FY24E-FY26E on high base). While A&SP cost is being upped to build demand in core and support innovations, operating leverage & savings will provide some additional support to operating margin. Marico is currently trading at ~46x/40x/37x on FY24E/FY25E/FY26E EPS as we build in ~12% EPS CAGR over FY24E-26E. Dividend payout remains high and return ratios are also expected to improve. With margins at peak levels, volume recovery becomes extremely crucial for earnings growth in FY25, signs of which are still not clearly visible. We continue to maintain our less than bullish rating of ADD with a revised TP of Rs605 (Rs625 earlier), valuing it at ~45x Sept’2025E EPS (3yr/5yr avg fwd. multiple: ~48x/45x).

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