Maintain ADD on Marico - All-round revenue recovery; miss on margin - HDFC Securities

Mr. Varun Lohchab, Institutional Research Analyst, HDFC Securities and Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Marico posted an all-round revenue recovery with miss on margin (in-line EBITDA). Revenue/EBITDA grew by 35/13% (HSIE 21/14%). Domestic revenue and volume growth were robust at 37/25%, 13/10% 2-year CAGR, reflecting superior execution. PCNO continued its steady growth momentum, while VAHO saw demand improve for all its brands. Saffola sustained its growth, aided by improved penetration and rising demand for healthy cooking. International, too, saw recovery, led by SAARC and MENA markets, clocking growth of 25% (9% 2-year CAGR). However, high RM inflation impacted margins (GM down >500bps YoY) sharply, despite the improved product mix. Marico ramped up its A&P expenses (up 37% YoY) as the company continued to be aggressive in new launches, but cost saving initiatives in other areas limited the impact on EBITDA margin (dip 300bps YoY). We expect the growth momentum to sustain, and the pressure on margins to ease in FY22, owing to soft RM prices and cost savings. We maintain EPS estimates for FY22/FY23. We value Marico at 40x P/E on Mar-23E EPS to derive a target price of INR 460. Maintain ADD.

Robust revenue growth with share gain: Revenue grew by 35% YoY (-7% in 4QFY20 and +16% in 3QFY21). Domestic volume grew by strong 25% YoY (- 3% in 4QFY20 and +15% in 3QFY21). PCNO saw 38/29% YoY val/vol growth while VAHO saw 22% YoY val/vol growth. Saffola sustained strong momentum and clocked val/vol growth of 43/17% YoY. High edible inflation resulted in exceptional price hike (now at 50%), which led to high value growth. Foods maintained stellar growth momentum in FY21 and reached INR 3bn size (134% growth in 4Q). GT growth in rural stood at 42/15% in 4Q/FY21 and urban at 23/5%. E-commerce posted strong 81/60% YoY growth in 4Q/FY21 (8% of domestic sales). CSD posted 59/-13% YoY in 4Q/FY21.

International revenue up by 25%: International clocked 25% YoY growth. Bangladesh continued its strong performance with 20/15% cc growth in 4Q/FY21, with the non-coconut portfolio seeing 26% growth. MENA/South East Asia/South Africa reported cc growth of 62/13/48% YoY (-50/5/-26%).

RM inflation impacts margin: GM dipped by 513bps YoY (+23bps in 4QFY20 and -223bps in 3QFY21), vs HSIE dip of 226bps YoY. Copra/LLP/HDPE were up 25/29/31% YoY. Employee/Adv/Other expenses grew by 39/37/11% YoY. EBITDA margin contracted by 300bps YoY to 16% (+58bps in 4QFY20 and -100bps in 3QFY21). EBITDA grew by 13% YoY (HSIE 14%). Domestic EBIT margin dipped 463bps YoY (+141bps in 4QFY20) while International margin expanded 266bps YoY (+3bps in 4QFY20).

Call and BS/CF takeaways: (1) Copra price was recently down by 15%; company expects zero copra inflation in FY22; (2) Saffola demand is sustaining, and the company has taken cumulative 50% price hike to pass on RM inflation; (3) food business would achieve INR 5bn in FY22 and INR 8- 10bn by FY24; (4) tax rate of 22-23% in FY22 and 22-24% for 3-4 years; (5) FCF was at INR 19bn vs. INR 10bn in FY20.

Shares of MARICO LTD. was last trading in BSE at Rs.445.4 as compared to the previous close of Rs. 411.65. The total number of shares traded during the day was 1366665 in over 29658 trades.

The stock hit an intraday high of Rs. 452.8 and intraday low of 416.25. The net turnover during the day was Rs. 606230807.

Source : Equity Bulls

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