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Domestic volume growth in single digit, in-line with expectation: Marico reported marginal de-growth of 0.8% YoY while flat revenue growth sequentially to Rs 2,476cr. The decline in revenue was largely because of drop in prices of its key products in domestic markets and currency headwinds in international markets. Further, the demand trend was largely in-line with management expectation of growing in single digit like last quarter due to slower than expected pace of recovery in the rural areas while urban saw pickup sequentially. In terms of volumes amongst businesses, domestic volume grew by 3% YoY and international business grew by 13% CC.

Significant improvement in margin YoY: Gross profit of Marico for Q2FY24 came in at Rs 1,250cr, a growth of 14.8% YoY and 1% QoQ and margin stood at 50.5%, an increase of 685bps YoY and 50bps QoQ because of moderation in raw material cost by 12.9% YoY and 1% QoQ and portfolio mix. Further, EBITDA too grew by 14.8% YoY with an improvement in EBITDA margin by 272bps YoY to 20.1%, despite substantial increase in advertising spends by the company. Advertisement spends was 10.8% of revenue in Q2FY24 as compared to 8.6% and 8.5% in Q1FY24 and Q2FY23. Besides, sequentially, the EBITDA de-grew by 13.4% while margin declined by 310bps due to subdued revenue growth, increase in advertising and other expenses. PAT too saw mixed sentiments with growth of 17.3% YoY and decline of 17.4% QoQ to Rs 360cr while margin came in at 14.5%, increase of 224bps YoY but a decline of 306bps QoQ.

Mixed sentiments for business growth: Marico’s India business reported revenue of Rs 1,832cr (74% of revenue) which increased marginally by 0.3% sequentially but de-grew by 3.4% YoY. Its volume grew in single digit by 3% due to challenging operating environment with sluggish demand sentiment in rural as higher food inflation and uneven rainfall distribution impacted sentiments. On the international business constant currency grew strong by 13% in CC terms while revenue in rupee grew by 7.3% YoY but de-grew by 0.9% QoQ to Rs 644cr. The growth was largely because of regions like MENA which delivered 34% CC, Vietnam grew by 13% CC terms with steady performance in home & personal care and food portfolio while in South Africa hair care segment led the growth of 23% however ongoing headwinds and macro challenges impacted growth in Bangladesh region which grew just by 2% in CC terms.

Large part of the domestic portfolio witnessed gradual pickup: Marico earned ~80% of revenue from the oil segment wherein its Parachute coconut oil (~31% of revenue) volume grew by 1% but in terms of value its de-grew by 1%. For Saffola oil portfolio (29% of revenue) volume was in lower single digit while value growth declined by 12% because of correction in prices of the products over the last 12 months. Further, its value added hair oil segment maintains market share in key areas while value share grew just by 1% due to slower recovery in mass personal care categories while its mid-premium segments gained share. Also, new launches for premium products continued in the quarter. Besides, its food portfolio of Saffola brand and premium personal care segments is gaining strong traction. Further, foods portfolio saw a growth of 25% in value terms as the company continues to grow strong for products such as oats, soya chunks, honey while its newer categories of Peanut Butter, Mayonnaise, Munchiez, True Elements and Plix are scaling up and gaining strength.

Outlook and Valuation: We believe management strategy of focusing on growing its foods and premium digital brands along with maintaining share of core would bode well for growth. Besides, easing raw material prices along with its plan of spending on advertisement for brand building and at the same time maintaining margin will continue to strengthen its operating performance. Going ahead, pickup in rural sentiments will be a key for further improvement in growth. On the financial front, we expect its Revenue/EBITDA/PAT to grow by 11.5%/18.7%/18.9% CAGR over FY23 -25E and continue to maintain our Buy rating and a target price of Rs 666.

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