IGI Logo

Enhanced pricing and volume prop growth

We are optimistic about Marico (MRCO IN) due to its robust potential for double-digit sales growth in the medium term, supported by strategic price hikes, improved direct distribution, and strong performance in its Foods and Premium Personal Care segments. Furthermore, as its new business verticals expand, there is an upside potential for margins in the long term, strengthening our positive outlook. We revise MRCO to Accumulate from Buy as the stock has run-up 5% in the past month, with TP unchanged at INR 752 on 50x FY27E P/E as we roll-forward.

Pricing actions aid strong revenue growth:

Q3 net sales rose 15.4% YoY to INR 27.9bn, in line with expectations, driven by a 17% domestic business growth and volume improvement to 6% (from 5% in Q2). Parachute grew 15% in value and 3% in volume, absorbing a 1% impact from a key price-point adjustment. Saffola edible oil saw low single-digit volume growth and a 24% value surge due to pricing actions amid rising vegetable oil costs. Value-added hair oils (VAHO) declined 2% YoY due to market sluggishness and competition, though mid and premium segments grew 3%. Foods expanded 31% YoY, led by strong Saffola oats growth, achieving an ARR of >INR 10bn. International business grew 16% in constant currency. MRCO expects high-teen consolidated revenue growth in Q4, led by pricing adjustments, including an additional 5% Parachute price hike, and steady domestic volume gains.

Growth businesses scaling in-line:

Project SETU, which aims to expand direct outlet reach, has successfully extended its presence to 11 states, yielding promising initial results. Furthermore, the new digital-first portfolio has exceeded expectations, achieving an ARR of over INR 6bn in Q3. In the domestic market, the combined revenue share from Foods and Premium Personal Care, including Digital-first brands, reached ~21% in 9M, with a target of surpassing 25% by FY27. The rapid scaling of these portfolios has been accompanied by a notable shift in their profitability in the past few years, emphasizing profitable growth focus of the diversification strategy.

Price chart

Near-term pressure on margins; long-term story intact:

EBITDA margin contracted 210bps YoY to 19.1%, in-line with our expectations. While MRCO is on track to achieve double-digit revenue growth in the consolidated business for FY25, higher input costs, particularly in copra and vegetable oil, are expected to exert temporary pressure on margins in the near term. Management remains confident in maintaining stable margins for Q4 and anticipates FY25 margins to be ~20%. Despite the short-term challenges, the long-term outlook remains positive, with expected margin expansion driven by improvements in the Foods and digital-first portfolio, a favorable product mix, and focus on premiumization as the business continues to scale.

Revise to Accumulate with TP of INR 752:

We remain positive on MRCO as it will deliver robust sales/EBITDA CAGR of 10%/9.5% in FY24-27E. We cut our FY26E/FY27E earnings marginally by 1-2% by to factor in lower margin and revise to Accumulate from Buy with TP unchanged at INR 752 on 50x (unchanged) FY27E P/E.

Please refer disclaimer at Report
SEBI Registration number is INH000000933