Buy Marico Ltd For Target Rs.750 By Motilal Oswal Financial Services Ltd
Revenue grows in mid-teens; modest operating profit growth due to RM inflation
Key highlights from Marico’s (MRCO) 3QFY25 pre-quarterly update:
Business overview – consol. revenue growth in mid-teens
* MRCO saw steady demand trends in 3Q, driven by improving rural consumption and stable urban sentiment compared to 2QFY25.
* Domestic business delivered sequential improvement in underlying volume growth and sustained market share gains across key franchises.
* Consolidated revenue grew in the mid-teens YoY. MRCO is on track to deliver double-digit revenue growth on full year basis.
* The company remains committed to volume-driven revenue growth while being cautious about margins in the near term.
International business:
* Mid-teen growth in constant currency terms
* In 3QFY25, MRCO’s international business delivered mid-teen growth in constant currency terms, driven by resilient and broad-based growth across markets.
* Bangladesh delivered high double-digit growth, showcasing visible strength.
* Vietnam faced a soft quarter due to a sluggish consumption environment.
* MENA and South Africa maintained robust double-digit growth.
Costs and margins
* Copra prices remained high and vegetable oil prices also increased during the quarter. Crude oil derivatives stayed range-bound.
* Rising input costs resulted in a higher-than-anticipated gross margin contraction as the company continued to favor consumer franchise expansion in the current environment.
* Operating profit growth is expected to be modest on a YoY basis as the company continues to invest in brand building.
Segments
* Parachute coconut oil delivered a resilient performance amid rising input costs and pricing pressure, although volume growth moderated QoQ. Revenue growth was in the low teens, supported by pricing interventions. The brand announced another round of price increases toward the end of this quarter as copra prices remained elevated.
* Saffola oils maintained steady volume, despite significant pricing interventions. Revenue grew in the high teens during the quarter.
* Revenue from value-added hair oils declined marginally due to competitive headwinds in the bottom-of-the-pyramid segment. However, the mid and premium segments saw a gradual recovery.
* Foods and Digital-first brands continued to exhibit strong growth, beating expectations.
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