Buy Marico Ltd For Target Rs. 765 By JM Financial Services
Revenue print remains strong; pace of volume recovery in core will be key
Marico’s 4QFY25 earnings print was largely inline with its pre-quarter update. Domestic revenue growth of 20% (with volume growth of 7%) is likely to be best in class among the Staples peers. Volume growth was entirely driven by new franchises (Foods & Premium Personal Care portfolio) while volumes in core portfolio declined in low single digits (impacted by steep price hikes & ml-age reduction). Mgmt reiterated its guidance of double digit revenue growth for FY26E - with strong pricing growth continuing in 1H along with sustained momentum in Foods & PC portfolio, we don’t see a challenge in achieving the same. Profitability is likely to be under pressure (especially in 1QFY25 which has high margins in base) with copra inflation cycle extending. Having said that, Marico has navigated inflation cycle well by demonstrating strong pricing power in core & also has other margin levers (margin expansion in Foods/D2C & some recovery in VAHO) to cushion the impact on profitability. We continue to like Marico within our HPC coverage; execution on portfolio diversification remains strong and earnings visibility is relatively better. Maintain BUY with a revised TP of INR 765 (47x June’27 EPS). Pace of recovery in core portfolio volumes & movement in copra prices will be key monitorable.
* Strong revenue growth print while copra inflation weighs on profitability: Marico’s 4QFY25 consolidated revenue grew 19.8% yoy to INR 27.3bn led by domestic sales growth of 23% (led by volume growth of 7% & price hikes in Parachute/Saffola Edible Oils) and International sales growth of 11%. GM contracted by 301bps (standalone GM down 520bps) to 48.6% as input costs remained elevated (copra/vegetable oil). Staff costs and other expenses grew by c.11%-12%% yoy, while A&P spends rose 35% yoy to 11.2% of sales (highest levels seen since 2017). EBITDA margins fell by 263bps to 16.8%, resulting in EBITDA and PAT growth being lower at c.4% and c.8% respectively. Management remains confident about double-digit revenue growth momentum and will strive to deliver double-digit operating profit growth in FY26E.
* Pricing-led growth drives core portfolio sales as volumes remain weak; Newer businesses continue to deliver ahead of expectations: 1) Parachute volumes declined 1% due to consumption titration amidst steep price hikes and ml-age reduction in select packs (impact of c.2%); pricing-led growth was c.23%, resulting in sales growth of 22%. Marico has taken another round of price increase of c.8-9% in 1QFY26 as copra prices remain firm. 2) Saffola Edible Oils grew 26% led by pricing interventions in response to elevated vegetable oil prices. Volumes saw marginal drop as a result. 3) VAHO sales grew 1% led by mid and premium segments. While performance is weaker vs other core businesses, growth of 1% was better than decline witnessed in the last four quarters. 4) Newer businesses’ performance – Foods grew 44% (Saffola Oats grew in double digits); Premium Personal Care continued strong performance led by Digital-first portfolio (reached INR 750cr. ARR in FY25). 5) International growth improved to 16% CC (reported growth of 11%) – MENA region saw robust 47% CC driven by double digit growth in Gulf and Egypt. South Africa and Bangladesh grew 13% and 11% CC while Vietnam remained muted.
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