Q4FY23 Review: Marico: Margin expansion on cards

8 May 2023 , 10:52 AM

Marico delivered a top-line growth of 4% YoY (domestic volume growth of 5%), driven by better performance in VAHO (+13%YoY) and International business (+16% CC terms). Gross margin expanded both YoY and sequentially, on account of decline in raw material prices and favourable portfolio mix. With input cost being benign, analysts of IIFL Capital Services expect 110 bps margin expansion in FY24.

Performance largely in line: 

Marico delivered 4% overall sales growth and 5% volume growth in the domestic business. Parachute saw 9% volume growth (3% value growth), driven by pickup in loose-tobranded conversion and penetration gains. VAHO posted double-digit growth of 13% after remaining subdued for last 5 quarters. Growth in VAHO was driven by decrease in competitive intensity and market share gains. Saffola franchisee declined by 9% in value terms with edible oil volumes falling in mid-single digits on a higher base.

Gross margins to show significant uptick: 

Gross margin for the company expanded 294bpsYoY and 247bps sequentially in Q4. Mgmt expects gross margin to expand ~200-250bps in FY24, with Copra remaining stable, cooling off of other raw materials and a favourable portfolio mix. Share of revenue of Foods, premium personal care and digital first brands has increased to 15% in FY23 (11% in FY22) and the company is targeting to move it closer to 20% of domestic business by FY24. In addition to margin expansion, VAHO clocking good growth is likely to boost profit growth.

EPS upgrades: 

Analysts of IIFL Capital Services expect top-line growth to be in mid-to-high single digit in near term, due to the price corrections taken by the company in past quarters. However, margins are expected to show significant expansion. They upgrade their EPS for FY24/FY25 by 5%/4% and forecast an EPS Cagr of 12% over FY23-26 with improvement in Ebitda margins to 20% by FY25 (Vs 18.7% in FY23). 

Analysts of IIFL Capital Services maintain add with target price of Rs 565.