MOSL: MARICO (Neutral)-Domestic volumes down 9%, performance affected by pipeline issues

​Marico: Domestic volumes down 9%, performance affected by pipeline issues

(MRCO IN, Mkt Cap USD6.6b, CMP INR327, TP INR355, 9% Upside, Neutral)

• MRCO's consol. net sales declined 4% YoY (est. of flat sales) to INR16.8b. Domestic volumes declined by 9% YoY (est. of -3%) and revenues by 4% YoY. International revenue grew 6% YoY on constant currency (CC) basis, with 1% overall sales decline. Rural sales fell 11% YoY, while urban sales were flat ahead of GST roll-out. The company increased its market share across categories.
• Consol. gross margin shrunk 430bp YoY (est. of -400bp) to 47.8%. Copra costs rose 69% YoY and 7% QoQ. Gross margin contraction can be ascribed to delay in price increases because of GST implementation. Consol. A&P expenses declined 230bp YoY and 22.9% on absolute basis YoY. There was a decrease in other expenditure by 40bp YoY, while staff costs increased 50bp YoY. EBITDA margin contracted 210bp YoY (lower than est. of -300bp) to 19.3%, and thus, EBITDA fell 13.3% YoY (est. of -14.2%) to INR3.24b. Adj. PAT declined 11.9% YoY (est. of -13.4%) to INR2.36b, 1.7% ahead of our estimate.
• Segmental growth: Parachute sales grew 3% YoY, with 9% volume decline; Saffola sales fell 8%, with volume decline of 8%; and Value Added Hair Oils (VAHO) sales dropped 8%, with 9% volume decline. The Youth brands portfolio declined 23% in value terms.