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Revenue marginally lower; operating profit grow in low double-digit YoY

Key highlights from Marico (MRCO)’s 2QFY24 pre-quarterly update

Macro view: Rising food prices and below-normal rainfall distribution

* Demand trends reflected the previous quarter’s patterns, indicating stability in market dynamics.

* Rural demand recovery is facing challenges, with rising food prices and uneven rainfall hindering anticipated progress.

* There are positive signs for 2HFY24 rural consumption, fueled by factors such as controlled retail inflation, MSP increases, a healthy sowing season, eased liquidity pressures, and heightened government spending.

Consolidated revenue marginally lower

* Consolidated revenue was marginally lower YoY, dragged down by price corrections in key domestic portfolios over the last 12 months, which will progressively come into the base going ahead.

* Currency depreciation in some of the overseas markets had an adverse effect on the reported INR growth in the international business.

International business: Double-digit growth in constant currency terms

* In 2QFY24, MRCO’s international business maintained its healthy growth momentum, with double-digit constant currency growth.

? International markets exhibited resilience in a volatile global operating environment.

Costs and margins: Gross margin to expand

* RM costs – Copra and edible oil prices stayed in a favorable range, although the latter continued to exhibit some volatility. Crude derivatives remained firm with an upward bias.

* Moderating RM costs would lead to gross margin expansion YoY.

* A&P spending continued to increase for strategic brand building in core and new categories.

* Operating profit is expected to grow in low double-digits.

Segments

* Domestic volumes grew in low-single digits YoY.

* Parachute Coconut Oil and Saffola Edible Oils saw low single-digit volume growth.

* VAHO exhibited low single-digit growth in terms of value.

* Foods and Premium Personal Care (including Digital-First) remained on course to achieve full-year targets.

Valuations

MRCO has clocked a ~9.1% earning CAGR over FY18-23 and is expected to achieve similar growth over FY24-25E and RoE of ~35%, led by volume growth, improvement in brand image of core franchises, higher growth in the food portfolio and premium personal care segment. With attractive valuations and a healthy return on equity, we maintain our BUY rating with a TP of INR690 

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SEBI Registration number is INH000000412