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Marico meets revenue expectations, bets big on digital brands & food business

News: Marico’s Q2FY21 results were in line with estimates on revenue front & below estimates on operating margins & profitability front.Revenue grew 21.6% led by 23.6% growth in domestic business & 14.6% growth in international business. India business volume growth was 8% in Q2. Gross margins contracted 555 bps YoY. The impact of gross margins was partially mitigated by lower overhead spends (144 bps) & employee spends (56 bps). Operating profit increased 8.8% to Rs.423 crore (I-direct estimate : Rs. 453 crore). Operating margins contracted 210 bps to 17.5%. Net profit grew 15.8% to Rs.316 crore (I-direct estimate : Rs. 337.9 crore). Business wise, Parachute sales grew 18% led by 7% volume growth & 11% price hikes during the quarter. The company gained 180 bps volume market share. VAHO segment sales grew 16% largely led by volumes. Saffola business (including foods) saw 46% sales growth during the quarter. Foods segment grew 70% despite a high base led by recent product launches. Edible oil volume growth was muted due to volatility in prices & lower in-home consumption.

Views: Marico has seen strong volume growth over a longer time period. Though the growth in parachute & some of the sub-categories in VAHO has slowed down due to the high penetration of hair oils, the growth in edible oil & foods has been very strong with increased consumer awareness of healthy eating. The company is also incubating some of digital only brands, which it aspires to grow to Rs.450-500 crore by FY24. The volatility in copra, rice bran & crude based commodities have been very high in last one year. However, we believe cost inflation would cool down or price hikes would be taken to pass on this inflation. We believe revenues would grow in double digit (volumes plus price hikes) & maintain healthy margins above 19% in the medium term. We maintain our positive stance on the company.