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Revenue growth muted but domestic volume grew in single digit: Marico reported decline in revenue growth of 1.9% YoY and 2.2% QoQ to Rs 2,422cr because of the pricing correction in its domestic portfolio, inventory reduction and currency headwinds in international markets impacted sentiments. The India business witnessed de-growth of 3.1% YoY and 2.1% QoQ to Rs 1,793cr while its volume grew by 2% YoY and international market growth was mixed as its grew just by 6% YoY in constant currency and in rupee term, it grew by 1.6% YoY but de-grew by 2.3% QoQ to Rs 629cr.

Margin witnessed healthy improvement: Gross profit of Marico reported a growth of 11.9% YoY to Rs 1,242cr but marginally down by 0.6% QoQ and gross profit margins improved significantly by 634bps YoY and 80bps QoQ to 51.3%. The healthy increase was because of moderation in raw material prices which saw a decline of 13.2% YoY and 3.8% QoQ and favorable portfolio mix. Despite, advertisement and employee increased by 11.8% YoY/18.1% YoY, EBITDA reported strong growth wherein EBITDA grew by 12.5% YoY/3.2% QoQ to Rs 513cr and margins higher by 272bps YoY/111bps QoQ to 21.2%. PAT grew by 15.9% YoY/7.2% to Rs 386cr with increase in PAT margin by 246bps/140bps to 15.9% for Q3FY24.

Steady growth in International business while domestic rural growth is yet to pick-up: The demand in the domestic business was led by urban markets while that of rural was soft and yet to pick-up pace as anticipated. India business growth was impacted because of lower volume growth led by inventory reduction and price correction in key portfolios. Amongst International business, overall growth was led by Gulf region, Egypt and South Africa which saw double digit growth while soft demand was witnessed in Vietnam however transient macroeconomic headwinds in Bangladesh dragged the overall growth and thus international market posted mid single digit growth.

Core portfolio of oils showing early signs of recovery: Amongst the core oil portfolio, its Parachute coconut oil (34% of revenue) volume witnessed steady volume growth of 3% YoY while value growth was flat. Franchise gained 40bps market share and going ahead volume will see gradual pick-up while pricing to be stable. Further, its value added oil portfolio (20% of revenue) posted mid to high single digit volume growth and 3% value growth YoY because of slower rural demand. Also, Its bottom-of-the-pyramid product growth remained subdued, while mid and premium segments grew in mid to high single digits. However, its Saffola oil portfolio (18% of revenue) volume saw a mid-digit volume decline because of high base last year while value growth declined by 26% YoY due to price corrections.

Outlook and Valuation: Marico reported mixed numbers for Q3FY24. In the near term, muted demand sentiment from rural areas remains a concern however from a medium to long term perspective we expect rural growth to see gradual recovery led by improving macro indicators, government spending, low raw material trends and pricing. Further, we believe management to continue with its strategy of innovating products, investing behind its brands, focus on product mix and scaling its foods as well as digital first portfolio and also benefit from moderating raw material prices. On the financial front, we expect its Revenue/EBITDA/PAT to grow by 8.6%/15.7%/16.6% CAGR over FY23-26E and continue to maintain our Buy rating and a target price of Rs 666.

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