Q4 22 updates
Summary
Marico
Marico - In D2C troubles
Maricoโs volume growth in core products (Parachute, Saffola) has stagnated. They took price cut in Q1 with realization down 7%.
They were banking on D2C acquisitions like Beardo to bring growth. Instead they are now fighting court battles and siphoning of funds.
In a lawsuit filed in the Bombay High Court, Beardo has sued its biggest distributor RHV Enterprise and its directors over unpaid dues of 26 crore which has been siphoned off. It seems that it is Beardo that has played Marico. The Beardo e-commerce growth story was never real. Beardo passed inventory to its distributor and showed glossy e-commerce sales.
Shows D2C may be a hyped plot for now.
Abhishek Murarka
In todayโs investor call, no one raised question about this lawsuit to management. On the contrary management presented Beardo as a success story and confirmed that Beardo is close to Rs. 150 crore mark in sales and is already profitable. Management sounded very confident on their D2C play. Is there anything we are missing here?
Any idea, why no dividend was announced this quarter. It means dividend of only Rs3/share for the year, down from Rs4.5 last year.
Any issues with cashflow or some acquisitions?
I think now is time to relook Marico and Dabur for investment. Recent low growth due to rural consumption pain, these companies are correcting to reasonable valuation for investment.
These companies have both growth engines - mass consumption products (volume growth) and premiumization products (value growth) . Currently, consumption sector is out of favor and PE is gettering de-rated. However, companiesโ management is focused on growth and cost optimization-which could be factors for reasonable return in near future (2-3 years) -
These companies really knows Indian consumersโ need and focused on itโฆincluding middle east and African countriesโฆI think now its time to do SIP buying!
Disc - started buying on every correction!
True. Especially Marico seems to be fairly priced at 45x. If you are not aggressive investor it is proxy to debt and can give 8%(including 2% dividend) of returns for many years to come based on a conservative profit CAGR of 10%
hi, dividend is paid and I have received in my account. But this time they announced dividend after q3 results.
Marico, a stock which has provided a modest 7% CAGR over the last 3 years is almost ready to come out of its 3-year consolidation zone!
The stock rallied 10% following its Q4 FY24 results as revenues grew 2% YoY after three consecutive quarters of decline and operating margins for the full year were at an all-time high at 21%.
Why are the sentiments upbeat for FY25?
The management alluded that rural growth witnessed a visible uptick towards the end of Q4 and that above-average monsoons would also help. Furthermore, it expects domestic volume growth to trend up consistently from Q1 FY25. Also, with pricing headwinds behind, the domestic revenue growth will outpace volume growth from Q1 FY25.
In terms of concrete guidance, the management is confident of achieving double-digit revenue growth for FY25 (as price drops will anniversarize in Q1 FY25) while holding operating margins at similar levels. It has also laid a roadmap to increase its distribution foothold from 1 million outlets to 1.5 million outlets directly over the next 3 years!
Whatโs the outlook on Parachute Coconut Oil, which constitutes ~25% of the companyโs consolidated revenues?
Parachute has seen a steady recovery over the last 3 quarters amidst the resumption of loose to branded conversions as copra prices have inched up on expected lines. Gradual escalation in copra prices is a positive for Parachute as the company can leverage the brandโs pricing power. In response to the rise in copra prices, the company has implemented price hikes in Aprilโ24 to the tune of 6% at the brand level, and it may take another round of price hikes if required.
Howโs Saffola edible oil shaping up?
After declining 16% in value terms in FY24, the management expects revenue growth to trend in a positive direction this year as the price base normalizes early FY25. It contributes ~15% to the companyโs consolidated revenues.
Howโs the Value Added Hair Oil (VAHO) segment faring up?
The segment declined 7% in value terms in FY24 due to sluggish demand and higher competitive intensity at the bottom of the pyramid. The management expects a more rational competitive environment in FY25. It contributes ~15% to the companyโs revenues.
Where does the Foods segment stand?
The food business had a healthy Q4 with the key portfolio constituents growing in double-digits. Theyโve reached 4x the scale of FY20. The company expanded gross margins of this business by 800 bps in FY24 and expects this to improve further.
With all the building blocks in place, the management aims to double the scale of foods business by FY27.
What about the Premium Personal Care segment?
This segment had a healthy growth trajectory during Q4, with the digital-first portfolio clocking an exit ARR of Rs 450 crores. Beardo has scaled 3x since FY21 and achieved positive EBITDA, and the management aims to deliver a double-digit EBITDA margin in FY25. Plix and Just Herbs have been scaling up with minimal cash burn.
The foods and premium personal care segment combined formed 15% of the consolidated revenues, and the management aims to take it to 25% by FY27.
Whatโs the outlook for international business?
The companyโs International business, constituting ~26% of the overall revenues, grew 9% in constant curreny terms. The company expects to maintain this momentum in FY25 as well.
The Bangladesh business has recovered strongly on a sequential basis amidst a challenging environment. This business is expected to grow in double-digits. Bangladeshโs revenue share in the international business has dropped from 51% in FY22 to 44% in FY24 as other geographies scale up!
Revenue growth in South-East Asia stood flat. The company is seeing a strong ramp-up in the MENA region through the expansion of its hair oil portfolio in Egypt, the Gulf region, and South Africa.
Whatโs next?
As the company embarks on a journey to strengthen its distribution foothold in the medium term and delivers a healthy revenue-led earnings growth led by a normalizing base and a rebound in rural consumption, the stock becomes worthy of being closely tracked and added at opportune times!
Few of my takeaways from Q1 FY25 of Marico
Marico appears cautiously optimistic about its near-term prospects. The company is seeing gradual improvement in demand trends, especially in rural areas. While pricing growth has flattened year-over-year, both home and personal care (HPC) and food segments are showing upticks. Premium segments are outpacing mass segments, and alternate channels are gaining prominence versus general trade. Marico expects volume trends to sustain their improving trajectory, aided by stable retail inflation and a progressing monsoon season.
๐๐ญ๐ซ๐๐ญ๐๐ ๐ข๐ ๐๐ฅ๐ฎ๐๐ฉ๐ซ๐ข๐ง๐ญ:
A key focus for Marico is Project SETU, aimed at expanding direct distribution reach. The initial phase has been launched in 6 states with promising results in urban and rural markets. This is expected to drive market share gains and enhance assortment levels. Marico is also aggressively pursuing portfolio diversification, aiming for foods and premium personal care to cross 25% of revenue by FY27. The recent deal with Kaya for exclusive rights to their personal care products is another strategic move to bolster the premium segment.
๐๐๐ซ๐ค๐๐ญ ๐๐ฒ๐ง๐๐ฆ๐ข๐๐ฌ:
Rural growth is outpacing urban growth, a reversal from previous trends. Thereโs a shift towards premium products and alternate sales channels. In value-added hair oils, thereโs been some downtrading to lower-priced products. Foods and digital-first brands are showing robust growth. The company is also seeing encouraging trends in market share and penetration for key brands like Parachute.
๐๐ง๐๐ฎ๐ฌ๐ญ๐ซ๐ฒ ๐๐๐ข๐ฅ๐ฐ๐ข๐ง๐๐ฌ:
Stable retail inflation and a good monsoon season are expected to boost rural demand. The growth of quick commerce presents opportunities, especially for food products. Thereโs increasing consumer preference for premium and digital-first brands.
๐๐ง๐๐ฎ๐ฌ๐ญ๐ซ๐ฒ ๐๐๐๐๐ฐ๐ข๐ง๐๐ฌ:
Elevated food inflation and uneven rainfall distribution could impact rural demand. Thereโs intense competition in the value-added hair oils segment, especially at the lower end. The edible oils market remains volatile.
๐๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ/๐๐ง๐๐ฅ๐ฒ๐ฌ๐ญ ๐๐ฎ๐๐ฌ๐ญ๐ข๐จ๐ง๐ฌ:
Analysts expressed concern about the persistent underperformance of value-added hair oils. Management acknowledged the challenges but highlighted their strategy to focus on mid and premium segments where margins are better. There were also questions about the situation in Bangladesh, to which management cautioned it was too early to comment definitively but expressed confidence in their long-term prospects there.
๐๐จ๐ฆ๐ฉ๐๐ญ๐ข๐ญ๐ข๐ฏ๐ ๐๐๐ง๐๐ฌ๐๐๐ฉ๐:
Marico is facing intense competition in value-added hair oils, especially in the mass segment. However, the company claims to be gaining or maintaining market share in over 90% of its business on a moving annual total (MAT) basis. In foods, Marico believes itโs outperforming many competitors.
๐ ๐ฎ๐ญ๐ฎ๐ซ๐ ๐๐ซ๐จ๐ฃ๐๐๐ญ๐ข๐จ๐ง๐ฌ:
Marico is targeting double-digit revenue growth for FY25, driven by gradual uptick in domestic volumes and pricing growth. The company aims to maintain operating margins at FY24 levels despite some inflationary pressures.
๐๐๐ฉ๐ข๐ญ๐๐ฅ ๐๐๐ฉ๐ฅ๐จ๐ฒ๐ฆ๐๐ง๐ญ:
Maricoโs focus appears to be on organic growth and strategic collaborations (like the Kaya deal) rather than major acquisitions. The company is investing in distribution expansion and brand building for its growth categories.
๐๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ข๐๐ฌ & ๐๐ข๐ฌ๐ค๐ฌ:
Key opportunities include the growing premium segment, expansion in foods, and the potential of digital-first brands. Risks include volatility in input costs, especially copra prices, and geopolitical uncertainties in markets like Bangladesh and Myanmar.
๐๐จ๐ง๐ฌ๐ฎ๐ฆ๐๐ซ ๐๐ฎ๐ฅ๐ฌ๐:
Management indicated improving consumer sentiment, especially in rural areas. Premium products continue to see strong demand, suggesting resilient spending by higher-income consumers.
Disclaimer: This is a general analysis and does not constitute financial advice.
Marico Ltd -
Q3 FY 25 results and concall highlights -
Revenues - 2794 vs 2422 cr, up 15 pc ( very strong topline growth for FMCG company )
EBITDA - 533 vs 513, up 4 pc ( margins @ 19.1 vs 21.2 pc - margin contraction due to steep RM inflation )
PAT - 399 vs 383, up 4 pc
India volume growth @ 6 pc, revenue growth @ 17 pc
International constant currency growth @ 16 pc
A&P spends are up 19 pc YoY in Q3 ( company continues to spend aggressively behind A&P despite facing a tough demand and RM situation - a key positive for long term )
Brand wise performance -
Parachute ( 33 pc of domestic business ) - volume growth @ 3 pc, value growth @ 15 pc
Saffola Oils ( 18 pc of domestic business ) - low single digit volume growth, value growth @ 24 pc
VAHO ( 19 pc of domestic revenues ) - negative volume growth, value growth @ (-) 2 pc
India Foods business ( Saffola oats, Muesli, True Elements etc have now reached an annualised run rate of aprox 1000 cr ) - value growth in Q3 @ 31 pc !!!
Premium personal care ( like - LIVON, SET WET ) - has reached annualised run rate of > 300 cr
Digital first brands ( like - PLIX, Beardo ) - have reached annualised run rate of > 600 cr
International business ( constant currency growth ) -
Bangladesh - 20 pc
Vietnam - flat
MENA - 35 pc
RSA - 17 pc
Aim to take foods portfolio to annual sales > 2000 cr by FY 28. Foods business is witnessing steady GM expansions - as its scale expands, it should only get better
Aim to double the annual business of Digital First brands by FY 28 with double digit EBITDA margins
Aim to have a direct reach @ 15 lakh outlets by FY 27 vs 10 lakh outlets in FY 24
Aim to take foods business share in India business to > 25 pc by FY 27 from 20 pc in FY 24
Aim to reduce Bangladesh business as a percentage of International business to < 40 pc by FY 27 from 44 pc currently
Key commodity prices in Q3 -
Copra - up 38 pc YoY
Rice Bran Oil - up 19 pc YoY
LLP - down 8 pc YoY
HDPE - down 5 pc YoY
Urban demand continues to be soft. Rural demand is witnessing a strong recovery
Bangladesh business continues to grow strongly despite challenging macro environment ( very strange - imho )
Successfully diversifying the business towards Foods + Digital first and Premium brands has been a key success at Marico in the last 3-4 yrs
PLIX has started to break even. Burn rate in True elements has now reached manageable levels
True elements is placed above Saffola in the healthy foods segments
Company is not pushing its Digital first businesses to go for very high growth rates ( like > 50 pc CAGR ) and simultaneously burn cash. Company would rather not burn cash and maintain a 25-30 pc kind of growth rates - applying this strategy for brands like - Berardo, PLIX
Saffola Oats ( Plain + Masala ) generates EBITDA margins near company average
Saffola Honey is also doing well - both on volumes and margins. Saffola Soya chunks is also scaling up well
In the next 3-5 yrs, company believes - all their new initiatives like brands in Foods, premium personal care and digital first categories - should reach the company level EBITDA margins of around 20 pc
PLIX addresses 2 of Indian Youthโs 2 primary requirements - Staying young + Looking young. Basically - the brand has huge tail winds
Growth in VAHO ( value added hair oils ) is being impacted ( for quite some time now ) because of unreasonable competition in the market place. Company is reluctant to indulge in undue price cuts / discounts just to crank up volumes. Once the price war is over ( in next 12-18 months ) and marginal players r out of the mkt, company expects the growth to resume in the VAHO category
Disc : hold a small tracking position, have bought a few FMCG stocks because of overall mkt weakness, not SEBI registered, not a buy / sell recommendation
