Marico Rating: Hold- Performance is likely to be subdued in Q3

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We expect revenue growth of 13.3% y-o-y and Ebitda growth of 1.8% y-o-y in Q3FY22 on a base of 16% and 10%, respectively. This implies a two-year revenue and Ebitda CAGR of 14.8% and 6.2%, respectively. India business has slowed (as we have been highlighting for the sector at large) while international has done well in spite of a decent base. India volume growth for Marico will be flat y-o-y on a high base of 15%; so, on a two-year basis, the volume CAGR works out to about 7.2%. We expect gross margins to improve sequentially but fall y-o-y.

Overall performance: Consolidated revenue growth in Q3FY22 will be in low teens. India revenue growth was in double digits. The International business delivered high teen constant currency growth on a healthy base. All markets fared positively, led by Bangladesh and a smart recovery in Vietnam. We expect Ebitda margin to remain flattish sequentially.

India highlights: Rural demand was sluggish, albeit optical to an extent, given the high base. Volumes were flat, owing to the weaker consumption sentiment and a strong base. However, on a 2-year CAGR basis, volume growth was close to its medium-term aspiration.

Raw materials and inflation impact: Among key inputs, copra prices were range-bound for most of the quarter before witnessing a correction towards the end of the quarter. Edible oil prices have also started softening, while crude oil prices remained firm. Gross margin to improve sequentially, but remain lower on a y-o-y basis. Operating margin is expected to be near the levels of the preceding quarter.