Marico Q3 Results Review - Revenue Growth Trajectory To Turn Positive From Q4: Systematix

Systematix Research Report

Marico Ltd. delivered a marginal beat on earnings with a soft topline performance offset by strong margin improvement despite higher advertising and promotion spends and employee costs. Revenue/Ebitda/profit after tax growth came in at -1.9%/12.5%/16.8% YoY respectively, led by 6% constant currency growth in the international business and 2% volume growth in the domestic business, which saw a 3% YoY revenue drop.

Revenue saw a decline given the price drops in core brands during the year in the domestic business, channel liquidity issues impacting retailer-level inventory and currency headwinds in the overseas markets.

Marico's gross margin expanded sharply by 634 basis points YoY/ 80 bps QoQ to 51.3%, Ebitda margin expanded 272 bps YoY to 21.2% with stronger gross margins partially offset by higher A&P spends (+125 bps), employee costs (+133 bps) and other expenses (+105 bps).

Key takeaways:

1. Marico confident of clocking 450-500 bps improvement in gross margins and 20-21% Ebitda margins for FY24 and double-digit revenue and low-teens earnings growth in FY25,

2. 200 bps volume impact of stock reduction undertaken to support general trade channel,

3. mid-single digit growth in foods given the margin focus which should increase to 20% plus from FY25,

4. focus on food business (Rs 7.5 billion revenue target for FY24) would be to scale up high-potential segments like soya, honey, munchies,

5. Value added hair oil business can see high single digit growth from H2 FY25 with softening inflation,

6. Saffola business to pick-up post stability in prices,

7. Parachute should also move to positive growth trajectory in H2 post aggressive demand-generations spends,

8. A&P spends will continue to move up given high growth aspirations in both core and new brands,

9. revenue trajectory to pick up from Q4 FY24 after a muted performance in 9M FY24 driven by gradual volume pick-up led by resilient growth in offtake, market share and penetration and

10. international business can see continued double digit CC revenue growth with stable profitability.

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