Parachute saw volume growth of 6% YoY in Q4FY19 on favourable base of 5% YoY dip. With price hikes coming into base, overall value growth was 4% YoY.
MRCO’s Q4FY19 revenue (up 8.7% YoY), EBITDA (up 12.2% YoY) came below our expectations impacted by lower volumes in hair oils and lower domestic margins. However, margin miss was due to higher ad spend to support new launches and edible oil growth, which are required to uplift medium term growth. With recent correction, risk-reward remains balanced, maintain ‘Hold’.
Parachute saw volume growth of 6% YoY in Q4FY19 on favourable base of 5% YoY dip. With price hikes coming into base, overall value growth was 4% YoY. Company gained 200bps market share in the category. VAHO was soft with mere 1% YoY volume growth and 7% YoY value growth in Q4FY19 (Dabur saw 2.5% YoY growth in hair oils).
Growth was impacted by soft growth in premium portfolio and impact of the trade pipeline due to select price cuts of 5% taken in some brands effective April 2019. Saffola edible oil spurt positive surprise with 18% YoY volume and 15% YoY value growth in Q4FY19 albeit on a soft base of 1% YoY decline in volumes and 3% YoY decline in value growth. However, we believe still that the segment is not out of the woods and sustainability remains the key.
International business saw strong growth of 14% YoY with 7% YoY constant currency (CC) growth in Q4FY19. Key markets of Bangladesh and Vietnam led the overall growth, while growth in MENA and South Africa was soft.
We like Marico’s recent thrust on innovations, though success rate remains the key which has been soft in the past few years. Also in the base business we will closely monitor the progress in Saffola and VAHO where the growth remains volatile. We cut our EBITDA by 2% but largely maintain earnings due to lower tax rate and keep our target FY21 P/E multiple at 40x to arrive at PT of Rs 380.