Marico's Q1FY20 results (Outperformer) - Steady performance, earnings visibility remains strong
Q1FY20 result highlights
- Marico’s consolidated revenue grew by 6.9% yoy at Rs21.7bn (est. Rs21.6bn), EBITDA grew by 25.7% yoy at Rs4.6bn (est. Rs4.55bn), Adj. PAT increased by 28.7% yoy at Rs3.3bn (est Rs3.3bn).
- Domestic volume growth was 6% yoy (est: 6%). Parachute volumes increased by 9% yoy, VAHO & Saffola volumes increased by 7% and 3% yoy respectively. In value terms, Parachute/VAHO/Saffola grew by 8%/11%/6% respectively.
- International business sales grew by 9% yoy (7% yoy in constant currency terms). Adj. for one-time trade inventory correction in the Gulf business, cc growth was 9% yoy.
- Consolidated gross margins increased by 520bps yoy (standalone gross margins up 470bps yoy) led by benign input costs (copra prices down 25% yoy). Staff costs were up 11% yoy, other expenses were up 5.7% yoy. A&P spends increased by 32.2% yoy (standalone A&P up 28.7% yoy).
- Resultant EBITDA margins increased by 320bps yoy to 21.3% (standalone EBITDA margins increased by 280bps yoy to 19.6%).
- Depreciation expense increased by 13% yoy, other income was up 17% yoy
Key positives: Healthy volume growth & margin expansion.
Key negatives: Weak growth in Saffola.
Impact on financials: No change in estimates.
Valuations & view
Marico’s 1QFY20 results were largely in line with estimates with stable volume growth and healthy margin expansion. On the domestic side, management remains confident of 6-8% volume growth which we believe is achievable led by share gains in hair oils segment, continued traction in foods segment, traction in new launches in VAHO and some recovery in Saffola & lower end segment in VAHO. Further, International business visibility is better given stable macros in key geographies like Bangladesh & Vietnam. This coupled with benign input cost led gross margin expansion provides enough headroom to invest behind brands as well as drive EBITDA margins, thereby providing a relatively better earnings visibility compared to peers especially at reasonable valuations of 41x/36x FY20E/21E EPS. Maintain Outperformer.
Marico is a consumer products company operating in the beauty and wellness space. Co. has multiple brands in the categories of hair care, skin care, health foods, male grooming, and fabric care. Co.'s India business markets household brands such as Parachute Advansed, Saffola, Hair & Care, Nihar, Mediker, Revive, Manjal, Setwet, Zatak and Livon among others. The International business offers brands such as Parachute, Hair Code, Fiancee, Caivil, Hercules, BlackChic, Code 10, Ingwe, X-Men, L'Ovite and Thuan Phat.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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