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Volumes to improve + Pricing cycle to reverse

Marico Ltd. (MRCO) 4QFY24 headline performance was in-line. Revenue for the quarter continued to be impacted by soft demand environment and flow through of earlier price corrections taken in domestic core. Gross margins (+30bps QoQ & +420bps YoY) surprised us positively led by softer input costs and favourable portfolio mix but was offset by higher overheads. Below EBITDA, impact of lower other income was offset by lower tax charge. Improving trajectory in domestic core, fresh price hikes in Parachute, base normalization for Saffola edible oils and shrinkflation anniversarization in VAHO along with continued momentum on domestic diversification and healthy growth in International business should help improve revenue growth performance in FY25. Maintain ADD rating with a revised target price (TP) of Rs620.

* Headline performance: Revenue was up by 1.7% YoY to Rs22.8bn (vs est. Rs22.6bn). EBITDA grew by 12.5% YoY to Rs4.4bn (vs est. Rs4.5bn). Adjusted PAT (APAT) after MI was up 10.3% YoY to Rs3.2bn (vs est. Rs3.2bn).

* Domestic revenues were flattish YoY with volume growth of 3% YoY (in-line). Domestic EBIT margin was up by ~220bps YoY to 20.2%. International business posted growth of ~7% YoY (10% CC growth) with EBIT margins up ~340bps YoY to 24.6%.

* Gross margin came in at 51.6% (+420bps YoY & +30bps QoQ; vs our est. 50.6%). Employee cost up 50bps YoY, advertisement and sales promotion (A&SP) up 50bps YoY and other overheads up 120bps YoY meant that EBITDA margin came in at 19.4% (up 190bps YoY; vs our est. 19.7%)

* FY24 revenue was down 1.1% YoY while EBITDA and APAT have grown by 11.9% and 14.1% YoY, respectively. Gross/EBITDA margin up 560bps/250bps YoY to 50.8%/21.0%, respectively.

Near term outlook

(1) Expect domestic revenue growth to outpace volume growth from 1QFY25, in light of the upward bias in prices of some of the key commodities.

(2) Core will see far better rural growth in second half of FY25.

(3) MRCO believes it might not see any EBITDA margin improvement in FY25.

View & Valuation

We are currently building ~11% revenue CAGR over FY24-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. (d) Distribution expansion through Project SETU. We expect 11.8% EBITDA CAGR over FY24-FY26E (~30bps EBITDA margin expansion as we expect gross margin to expand by just ~60bps over FY24-FY26E on high base). While A&SP cost is being upped to build demand in core and support innovations, operating leverage, savings and favorable mix, will provide some additional support to operating margin. Marico is currently trading at ~41x/37x on FY25E/FY26E EPS as we build in ~12% EPS CAGR over FY24-26E. 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. We continue to maintain our less than bullish rating of ADD with a revised TP of Rs620 (Rs605 earlier), valuing it at ~44x March’2026E EPS (3yr/5yr avg fwd. multiple: ~47.5x/44.5x).

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