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In-line performance; volume trend to improve in FY25

* Marico (MRCO) reported an in-line revenue growth with a slight miss in EBITDA in 4QFY24. Domestic revenue was flat owing to the impact of price cuts. Volume grew 3%. International growth was 7% YoY (10% cc growth).

* Parachute coconut oil (PCNO) posted 2%/2% YoY growth in value/volume. The category gained 50bp in market share, but its performance was subdued throughout the year. VAHO revenue was down 7% YoY, affected by a high base and persistent weakness in the mass segment. Saffola oil clocked mid-single digit volume growth, but revenue contracted by midteens due to price cuts. Foods sustained strong growth of 24% YoY.

* The premium and urban-centric segments stayed ahead of the rural and mass segments. Rural sentiment too saw revival toward the quarter end. The management is optimistic about growth revival in FY25 and expects double-digit revenue growth, driven by healthy volume growth.

* Gross margin hit a 28-quarter high of 51.6%, driven by softer input costs. EBITDA margin expanded 190bp YoY to 19.4%. EBITDA grew 12% (est. 14%).

* We reiterate our BUY rating on the stock with a TP of INR625 (45x FY26E EPS). We believe that MRCO is a good play on volume recovery.

Sustained double-digit EBITDA growth; volume to recover gradually

Consolidated

* In-line revenue growth: Consolidated net sales grew 2% YoY to INR22.7b (est. INR22.7b) in 4QFY24. Domestic growth remains sluggish, due to muted volume growth, which was further impacted by price cuts. Domestic value/ volume growth was flat/up 3% YoY in 4QFY24 and -3%/+2% YoY in FY24. PCNO and VAHO both remained weak, while Saffola oil sustained healthy volume growth in FY24. Foods logged 24% value growth YoY, closing the year at ~4x of its scale in FY20. The premium personal care portfolio also sustained healthy growth (digital-first brands at INR4.5b ARR).

* International up 10% cc growth: The international business delivered 10% CC growth, led by a recovery in Bangladesh (after facing transient headwinds in the preceding quarter) and strong growth momentum in MENA and SA.

* EBITDA up by 12% for 4QFY24: Gross margin expanded by 420bp YoY to 51.6% (est. 51.5%) owing to softer input costs and favorable portfolio mix. As a percentage of sales, higher staff costs (up 50bp to 8.2%), A&P expenses (up 60bp to 9.9%), and other expenditure (up 120bp to 14.1%) led to EBITDA margin expansion of 190bp YoY to 19.4% in 4Q (est. 19.7%). In 4Q, EBITDA/adj. PAT grew 12.5%/5.3% YoY to INR4.4b/INR3.2b (est. INR4.5b/INR3.3b).

* In FY24, net sales declined by 1% YoY, whereas EBITDA/adj. PAT growth stood at 12%/14% YoY.

Highlights from the management commentary

* Rural sentiment improved at the end of the quarter, while growth in urban areas remained subdued.

* MRCO aims to deliver double-digit revenue growth through market share gains in the domestic core portfolios, accelerated growth in the Foods and Premium Personal Care, and double-digit CC growth in the international business.

* Operating margin will remain stable in FY25 as seen in FY24 and will expand in the medium term with leverage benefits and premiumization of the portfolios across the India and international businesses.

* Saffola edible oil revenue declined in the mid-teens YoY as erstwhile pricing correction was yet to normalize, which is expected in 2QFY25. ? In FY24, the company’s direct reach stood at 1m outlets and is expected to reach 1.5m by FY27. The total reach stood at 5.8m outlets and is expected to reach 6m (4x of direct reach) by FY27.

Valuation and view

 * There is no material change in our FY25E/FY26E EPS.

* The improvement in rural market, market share gain, accelerated growth in Foods and Premium Personal Care, healthy growth in international business, and the normalization of price cuts should help MRCO deliver better revenue in FY25-26E.

* To improve its distribution reach, MRCO has also started “Project SETU,” which helps to drive growth in GT through a transformative expansion of its direct reach.

* The company has been sustaining double-digit EBITDA growth, a better scorecard for MRCO (high commodity sensitive). We estimate a 10% EPS CAGR during FY24-26.

* We value the stock based on 45x Mar’26E EPS to arrive a TP of INR625. We reiterate our BUY rating on the stock.

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