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Operationally in line; growth acceleration to sustain

* Marico (MRCO) reported consol. revenue growth of 7% YoY (in line) in 1QFY25. Domestic revenue growth was 7% YoY with volume growth of 4% (3% in 4QFY24). International growth stood at 5% YoY (10% cc growth).

* Parachute coconut oil (PCNO) posted 6%/2% YoY growth in value/volume. Volume growth was partially affected by stock adjustments in GT. Volume offtakes grew by 8%. PCNO gained 100bp market share.

* VAHO revenue was down 5% YoY, affected by persistent weakness in the mass segment. Saffola oil clocked mid-single digit volume growth, but revenue marginally declined 1% due to price cuts. Foods sustained strong growth of 37% YoY.

* The premium and urban-centric segments outperformed the rural and mass segments. Rural demand is gradually improving, while urban markets remained stable. The management is optimistic about a growth revival in FY25 and expects double-digit revenue growth, led by volume.

* Gross margin hit a 28-quarter high of 52.3%, driven by softer input costs. EBITDA margin expanded 50bp YoY to 23.7%. EBITDA grew 9% (est. 10%).

* We reiterate our BUY rating on the stock with a TP of INR750 (50x Jun’26E EPS). We believe that MRCO is a good play on volume recovery.

Broadly in-line performance; volume up 4%

* In-line revenue growth: Consolidated net sales grew by 7% YoY at INR26.4b (est. INR26.7b) in 1QFY25. EBITDA/ PBT/Adj. PAT grew 9%/7%/9% YoY to INR6.3b/INR6.0b/INR4.6b/ (est. INR6.3b/INR6.1b/INR4.6b). Domestic volumes grew by 4% YoY (est. 4%).

* Category performance: PCNO pack registered 2% volume growth. VAHO remained weak, down 5% in value terms. Saffola Edible Oils posted midsingle digit volume growth, while value growth was down by 1%. Foods delivered 37% value growth YoY, with Saffola Oats clocking 20%+ growth. Premium Personal Care sustained its healthy growth trajectory.

* International sees 10% CC growth: International business delivered 10% CC growth, led by Bangladesh/MENA/South Africa, up 8%/20%/28% CC. South East Asia remained flat.

* Improvement in margin: Consolidated gross margin expanded by 230bp YoY to 52.3% (est. 51%, vs. 51.6% in 4Q) owing to softer input costs and a favorable portfolio mix. As a percentage of sales, staff costs rose 40bp to 7.7%, A&P expenses grew 50bp to 9.1% and other expenditure increased by 90bp to 11.8%. EBITDA margin expanded by 50bp YoY to 23.7% (est. 23.7%). EBITDA grew by 9.1% YoY (est. 10.5%).

Highlights from the management commentary

* The FMCG sector has seen a steady increase in demand, with rural growth surpassing urban growth.

* There is a sequential improvement in volume growth in the domestic business.

* Pricing growth remained flat YoY, but both HPC and Foods saw an increase, with HPC' seeing notable growth in the past six months.

* MRCO continues to focus on urban-centric and premium portfolios through the organized retail and e-commerce channels.

* The digital-first brands are expected to achieve double-digit EBITDA margin by FY27.

* Beardo is expected to hit double-digit EBITDA margin in FY25.

* The company aims to deliver double-digit revenue growth in FY25.

Valuation and view

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

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

* 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 an 11% EPS CAGR during FY24-27E.

* We value the stock based on 50x Jun’26E EPS to arrive a TP of INR750. We reiterate our BUY rating on the stock. Although it has rallied 35% in the last three months, we continue to believe that rich valuation will sustain given earnings acceleration.

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