Buy Marico Ltd For Taget Rs.690 - Motilal Oswal Financial Services
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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
