Q4 22 updates
Summary
Marico
Marico - In D2C troubles
Marico’s 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 today’s 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, companies’ 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 consumers’ need and focused on it…including middle east and African countries…I 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!
What’s the outlook on Parachute Coconut Oil, which constitutes ~25% of the company’s 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 brand’s pricing power. In response to the rise in copra prices, the company has implemented price hikes in April’24 to the tune of 6% at the brand level, and it may take another round of price hikes if required.
How’s 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 company’s consolidated revenues.
How’s 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 company’s revenues.
Where does the Foods segment stand?
The food business had a healthy Q4 with the key portfolio constituents growing in double-digits. They’ve 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.
What’s the outlook for international business?
The company’s 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. Bangladesh’s 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.
What’s 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!
