Marico - Strong core; embellishment to peripherals the key - ICICI Securities

1Q volume decline of 14% was a tad underwhelming driven by 30% decline in value added hair oil (VAHO) despite a strong bottom-of-the-pyramid portfolio and (just) 16% growth in Saffola. However, we believe that this miss was primarily due to a slow start (April was a washout but May-June sales grew 3% YoY) and high contribution of modern trade and defence channels (which were under pressure). We expect strong FY21 driven by (1) market share gains in coconut oil (it plans to pass on copra price correction benefits), (2) increasing household penetration of Saffola (growth from new customers is more sustainable), (3) potential for higher primary sales (buffer), (4) savings in ad-spends to be invested behind improving value proposition and (5) resilient international exposure (versus Godrej and Dabur). Marico remains an outperformer in our view. Retain ADD.

- Revenue significantly impacted due to disruptions in April'20: Consolidated revenue declined 11%, EBITDA grew 1% and recurring PAT declined 3%. Domestic revenue declined 11% driven by 14% volume decline due to supply chain disruptions and near wash-out for discretionary products in April'20. However, the Indian business saw recovery in the months of May and June with 3% growth YoY (includes inventory replenishment at distributor level with significant disruptions is April) with Marico gaining market share in 90% of its portfolio on a MAT June'20 basis. Management expects Q2FY21 to be volatile driven by localised lockdowns.

- Segment performance: Parachute revenue declined 12% due to 11% volume decline, impacted by disruptions in April. Value added hair oils (VAHO) revenue declined 32% (-30% volume) as the mid and premium segments continued to underperform. However, VAHO grew in May-June period primarily led by bottom of the pyramid segment. Saffola edible oils only grew 16% (management target was 20%) in both value and volumes, benefitting from in-home consumption tailwinds. However, the growth was constrained due to pantry stocking in March'20 and significant headwinds in MT and CSD channel where Saffola has higher salience. In other categories, healthy foods grew 30% while Premium Personal Care segment reported significant decline (discretionary nature). Hygiene segment started well and contributed ~1.5% to domestic revenues.

- International business: Revenue declined 4% in constant currency terms (+2% reported) drive by significant impact on international markets with supply chain disruptions and macro headwinds - South East Asia (-17% in cc terms), MENA (-27% in cc terms) and South Africa (-25% in cc terms) with exception of Bangladesh (+10% in cc terms).

Shares of MARICO LTD. was last trading in BSE at Rs.362.05 as compared to the previous close of Rs. 350.45. The total number of shares traded during the day was 247618 in over 5527 trades.

The stock hit an intraday high of Rs. 368.75 and intraday low of 355.6. The net turnover during the day was Rs. 89889306.

Source : Equity Bulls

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