Marico Stock Research Report by ICICI Securities
Sector: Household & Personal Products
CMP Rs. 494, Target Rs. 560 (13% upside potential)
Target Period: 12 Months
Marico Stock Research Report: Good. Ingredients to be great exist
Positives in the 4QFY23 results are (1) continued volume growth in Parachute led by market share gains, (2) strong recovery in value-added hair oil driven by outperformance in premium portfolio while lower competitive intensity in bottom-of-pyramid, (3) value/volume market share gains in all key segments and (4) healthy revenue growth in international market. However, revenue performance in Saffola edible oil (mid-single digit volume decline) has been underwhelming: 4Y volume CAGR (high single digit) has been satisfying but lower than historical averages. We like the continued execution-driven revenue performance in Food and digital first brands. Despite current FMCG industry volume growth numbers (at +3% overall, +0.3% in rural) appearing promising, consensus may view it as a “show me story” and not a “trust me story” and we agree.
ADD retained. Read our detailed report.
● Some improvement in volume trajectory though still unexciting: Consolidated revenue / EBITDA grew 4% YoY (9% 4Y CAGR) / 14% YoY (7% 4Y CAGR), respectively. Domestic revenue grew 2% YoY with volume growth of 5% (6% on 4Y CAGR). This (low volume growth vs value growth) was impacted by price cuts executed in PCNO and Saffola Edible oils due to correction in input cost. General trade declined in low single digits, while MT and Ecom grew in double digits with ~29% domestic revenue share in FY23. Management highlighted about sequential recovery in FMCG sector; overall volume grew 3% YoY in 4QFY23 (0.3-0.7% volume decline over last 3 quarters), while recovery in rural looks moderately better (volume grew 0.3% vs 2-4% YoY decline since last three consecutive quarters).
● Marico Stock Research Report: Segment performance: Parachute volumes were up 9% YoY (6% 4Y CAGR) driven by market share gains (70bps YoY) from unorganised players. VAHO value growth stood at healthy 13% YoY (~4-5% 4Y CAGR) driven by market share gains, outperformance in premium segment and lower competitive intensity at value price points. Saffola brand revenue declined 9% YoY led by 4-5% decline in volume (+7-9% 4Y CAGR) and price cuts in Saffola edible oil. The Saffola Foods franchise continues to grow strongly (up 18% YoY) with good performance in the oats business and sustained traction in the recent introductions. It is confident to reach Rs8.5bn revenues in foods and Rs4bn exit ARR in digital first brand segment by FY24E.
● Marico Stock Research Report: International business: Strong performance across all regions: Revenue grew 16% YoY in constant currency terms driven by broad-based performance across geographies – Bangladesh (+9% in CC), South East Asia (+16% in CC) and continued performance in MENA (+37% in CC) and South Africa (+21% in CC).
● Margins improve: Consolidated gross margin expanded 290bps YoY to 47% (up 250bps QoQ) driven by moderation in copra price and improved portfolio mix in India business. Management expects gross margin to remain steady with upward bias.
Copra price was up 2% QoQ but down 7% YoY. Rice bran oil was down 22% YoY and 16% QoQ. LLP price was up 21%YoY while HDPE price declined 2%YoY. The management expects copra prices (domestic) to remain range-bound with season supplies going down.
Consolidated EBITDA margin was up 150bps YoY to 17.5%. Ad-spends were up 3% YoY (-5% QoQ). EBITDA grew by 14% YoY while PAT was up 20% YoY aided by higher other income which includes one time gain of Rs280mn regarding sale of an overseas land. Management expects gross margin to improve by 200-250bps and operating margin to improve by more than 100bps in FY24.
● Valuation and risks: We broadly maintain our earnings estimates for FY24-25E; modelling revenue / EBITDA / PAT CAGR of 12 / 18 / 18 (%) over FY23-25E. Maintain ADD with a DCF-based unchanged target price of Rs560. At our target price, the stock will trade at 40x P/E multiple Mar-25E. Key downside risk is higher-than-expected inflation in copra prices.
To study next Research Analysis.. Click
To Study our Small Cap Calls… Click
For Mutual Fund Guidance, Click chanakyaMFguidance.com
https://www.analysislibrary.com/greenpanel-industries-stock-research-report/