Q2FY24 Review: Marico: Price cuts weigh on sales growth

31 Oct 2023 , 01:21 PM

Marico reported weak sales growth, with India business witnessing ~3.4% sales decline despite 3% volume growth due to price cuts in edible oils segment. The problem area is VAHO which likely reported volume decline and parachute too which reported lackluster volume on favourable base. Pricing headwinds will likely continue in H2 as well, driving low single digit sales growth. Margin seems to be maxed out at 21% for FY24. Analysts of IIFL Capital Services cut their EPS estimate for FY24/25/26 by ~5%/5%/7%. Maintain ADD; TP Rs590. 

Broadly in line with estimates: 

For Q2FY24, Marico reported a consolidated sales decline of 0.8% (IIFLe 0.5%). The Gross Margin expanded by 685bps YoY and by 50bps sequentially owing to softening of RM prices. The Ebitda & Pat grew by 14.8%/17.3% (IIFLe 13.2%/20.8%) and the Ebitda margin expanded by 272bps and stood at 20.1% (IIFLe 19.7%). The advertisement expenses increased by 25.8% and were ~10.8% of the consolidated sales. VAHO witnessed a 1% value growth whereas Parachute & Saffola oils witnessed a 1% and 12% value decline respectively. 

Recovery expected: 

Despite a subdued quarter in terms of volume growth, the offtake remained healthy with ~85% of the portfolio sustaining or gaining market share and penetration on MAT basis. Some of the factors that will drive recovery in volume growth in the medium term are moderating inflation, increased government spending on infrastructure (especially in rural areas) and onset of festive season. 

FY24/25/26 EPS downgrade by ~5%/5%/7%: 

Analysts of IIFL Capital Services downgrade comes on the back of a subdued H1FY24 (2% revenue decline). They expect a top-line growth of ~2.5% for H2FY24. They expect a sales cut of ~4.3% for FY24/25/26 and the Ebitda margin for FY24/25/26 at ~21%.w