Volume recovery crucial for Marico’s growth in FY25, stock gains

Marico’s January-march quarter (Q4) results were slightly better than consensus. Revenue was up by 1.7 per cent year-on-year (Y-O-Y) to ~2,280 crore. Ebitda grew by 12.5 per cent Y-O-Y to ~440 crore. Adjusted PAT was up 10.3 per cent Y-O-Y to ~320 crore. Domestic revenues were flattish Y-O-Y with volume growth of 3 per cent Y-O-Y with domestic Ebit (earnings before interest and tax) margin up by 220 bps Y-O-Y to 20.2 per cent.

The international business posted growth of 7 per cent Y-OY (around 10 per cent in constant currency) with Ebit margins up 340 bps Y-O-Y to 24.6 per cent. This growth was led by a recovery in its Bangladesh business.

The premium and urban segments continued to outperform rural and mass segments. The modern trade and e-com channels continue to gain traction. Gross margin came in at 51.6 per cent, up 420 bps Y-O-Y and up 30 bps quarter-onquarter (Q-O-Q). Employees cost up 50 bps Y-O-Y, advertisement and sales promotion (A&SP) was up 50 bps Y-O-Y and other overheads were up

120 bps Y-O-Y. The Ebitda margin came in at 19.4 per cent up 190 bps Y-O-Y.

The FY24 revenue was down 1.1 per cent Y-O-Y while Ebitda and adjusted PAT have grown by 11.9 per cent and 14.1 per cent Y-O-Y, respectively. The FY24 gross margin and Ebitda margin were up 560 bps and 250 bps Y-O-Y to 50.8 per cent and 21 per cent respectively.

Revenue outlook

The commentary indicates that in the near-term, we can expect domestic revenue growth to outpace volume growth from Q1FY25, given the upward bias in prices of some of the key commodities. The company is prepared to hike prices in case of inflation in order to maintain margins. The core business will see better rural growth in the second half of FY25. The company doesn’t expect any Ebitda margin expansion in FY25. There’s healthy momentum in international business.

Marico’s distribution initiative is Project SETU, which is focused on increasing direct reach, from one million outlets now to 1.5 million outlets in the next three years. This will help the company to gain market share across both urban and rural markets.

Analysts believe the compounded annual growth in revenue could be about 11 per cent during FY24-FY26 led by recovery in volume growth for the core portfolio. Inflation is expected in FY25 with likely price hikes.

There’s likely to be an uptick in the revenue share of foods, and premium personal care driven by innovations, brand building spends etc. The A&SP cost is being hiked to build demand in core and support innovations, operating leverage, savings and favourable mix, will provide some additional support to operating margin.

Performance insights

In Q4, Parachute volume growth was modest at 2 per cent Y-O-Y with moderate conversion from unbranded to branded. It has gained 53 bps market share. There were price hikes of 6 per cent at brand level owing to a rise in copra prices. Value Added Hair Oil (VAHO) had a poor quarter with 7 per cent Y-O-Y revenue decline due to competitive intensity in the mass segment while mid and premium segments grew. Saffola edible oil revenue declined 16 per cent Y-O-Y, impacted by price cuts.

The dividend payout remains high and return ratios are also expected to improve. The market obviously likes the results and commentary with the stock price surging 9.75 per cent to close at ~583.35. Given that expectation for margin improvement is not high, volume recovery is crucial for growth in FY25.

According to Bloomberg, 27 of the 32 analysts polled post results are bullish, two have neutral ratings, while three are bearish. Their average one-year target price is ~599.22.