Marico’s Q4FY19 print was weaker than expected operationally (partly dragged by higher A&P); volume internals were weak as well (Parachute/VAHO disappointed) even as headline domestic volume growth at 8% was a shade ahead of our estimate, led by Saffola. International business posted a good quarter (both volumes/margin).
Unlike peers, Marico’s management was more optimistic on sustaining revenue growth momentum in FY20 (8-10% volume guidance maintained) even as it sounded a tad guarded on quantum of margin expansion (18%+ margin, GM gains to get reinvested to support strong NPD funnel). We cut our estimates by 5-6% as we bake in higher price deflation, moderation in volumes (overall softness, weakness in VAHO) and lower margin (higher A&P). We have Add rating with revised TP of Rs 380 (from Rs 410) based on target P/E of 40x Mar-21 EPS.
Operational results below expectations: Marico’s Q4FY19 print was weaker vs. our expectation despite robust domestic volume delivery at 8% y-o-y (vs. our estimate of 7%); we highlight the misses (i) domestic FMCG growth at 7% y-o-y was 5% below our estimate; (ii) within core brands while Saffola exceeded expectations (18% volume growth), others like Parachute (6% volume growth, 2-yr CAGR nearly flat) and VAHO (volume growth down to 1%) disappointed and (iii) Ebitda growth was 13% below our estimate on standalone basis and 6% below estimate on consolidated basis.