Marico's performance in 4QFY20 was broadly in line with our estimates driven by a surge in Saffola. The rest of the co's portfolio remained under pressure and lockdown decelerated PCNO/VAHO by 12/18% respectively. Co had witnessed marginal recovery in PCNO and VAHO in Jan-Feb, but it was short lived as it impacted by lockdown. Although supply side issues will be resolved in the coming months (as of now 70-80% utilisation) but demand side pressure will impact FY21 (particularly to VAHO/PC). International business (22% of total) was impacted (5% decline) by restrictions in MENA and lockdown in Bangladesh. It is expected to remain weak in FY21. Co is focusing on various cost controls and along with softness in copra in FY21 to support EBITDA margin. We cut our EPS estimates by 1% for FY20/FY21 (4/6% cut in our thematic report in April). We value Marico at 30x on Mar-22E EPS, our TP is at Rs 287. Maintain REDUCE.
Saffola drives revenues: Revenues declined by 7% (+9% in 4QFY19 and -2% in 3QFY20) vs exp of 6% decline. India volume dipped 3% (+8% in 4QFY19 and -1% in 3QFY20) while the overall volume dipped 4%. PCNO witnessed a 12/8% val/vol dip while VAHO saw a sharp decline of 18/11% in val/vol. Saffola sustain surge in demand in Jan-Feb that further supported by pantry loading in March, val/vol grew by 25/25%.
Margins in-line: GM expanded by 23bps to 49.3% (+239bps in 4QFY19 and +282bps in 3QFY20) vs. exp of +126bps. Employee/A&P/Other expenses declined by 8/18/2%. The dip in A&P was driven by a reduction in new product launches during the quarter and curtailment of A&P in the last week of March. EBITDA margin was up 58bps to 18.9% (+125bps in 4QFY19 and +170bps in 3QFY20) vs expectation of +59 bps. EBITDA declined by 4% YoY. EBIT margins for Domestic/International expanded by 141/3bps.
Call & other takeaways: (1) 90-95% of Marico's portfolio saw market share gains, (2) Co expects the impact of Covid-19 to be sharper at the bottom of pyramid in urban markets than in rural (3) International biz is expected to recover in the near term as key markets for the co, like Bangladesh, are opening up, (4) Co is working at 70-80% of capacity. However, restocking at the distributor level has been a challenge, (5) Co believes growth in Saffola will remain strong due to the increase in home cooking, (6) Co has launched sanitizer and Veggie clean to boost its hygiene portfolio. Sanitizer has been launched in Bangladesh and Vietnam as well.
Maintain REDUCE: Marico's business will be less volatile than some of its peers. Despite FY21 performance will be muted and we do not see any re-rating drivers in the near term. We maintain REDUCE rating.
Shares of MARICO LTD. was last trading in BSE at Rs.296.05 as compared to the previous close of Rs. 284.4. The total number of shares traded during the day was 454321 in over 11009 trades.
The stock hit an intraday high of Rs. 301.65 and intraday low of 289.6. The net turnover during the day was Rs. 134241882.