Marico delivered a broadly in-line Q3FY15 despite unexpected sharp decline in the company’s Egypt business. Even as we continue to find Marico well-positioned to deliver consistent, strong earnings growth over the next few years, the recent sharp run-up forces us to downgrade our rating a notch to ‘add’ from ‘buy’. We remain positive on the name.
Marico’s headline financials were broadly in line with our expectations. Gross margins declined 290 bps y-o-y on account of sustained raw material inflation y-o-y. Ebitda margin decline was contained to 54 bps y-o-y on account of leverage gains from strong pricing-led 21% revenue growth.
Marico’s 21% consolidated topline growth was a combination of strong 26% growth in the domestic FMCG business and weak 4% rupee revenue growth in the international business. India business growth was primarily price-led – volume growth was weaker than expectations at 5% on account of lower-than-expected growth in the value-added hair oil portfolio as well as Saffola. Saffola volume growth was particularly disappointing. The company attributed the same to increased pricing premium in the market versus other refined edible oils. International business growth was impacted by a sharp 46% decline in the company’s revenues from Egypt.
Kotak Institutional Equities