Buy Marico Ltd For Target Rs. 800 By JM Financial Services
Marico’s 1QFY26 earnings print was tad better than our estimate. Domestic revenue growth of 27% (with volume growth of 9%) is likely to be best in class among the Staples peers. Volume growth was driven by new franchises (Foods & Premium Personal Care portfolio) as well as recovery in volumes for Saffola edible oils & VAHO. In terms of outlook, mgmt. has guided for revenue growth of 25% - with strong pricing growth in core 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 1HFY26 which has high margins in base) with copra inflation cycle extending. As a result, EBITDA growth is expected to be lower – mgmt. didn’t give guidance on the same, expects more clarity on copra cycle in coming quarters but will strive to achieve high-single-digit EBITDA growth in FY26. Medium term guidance remains unchanged – double-digit revenue growth along with uptick in margins. 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 & recovery in VAHO) to cushion the impact on profitability. We continue to like Marico within our HPC coverage; execution on portfolio diversification remains strong. Estimates remain broadly unchanged; we would monitor how copra prices play out going ahead. We roll forward, maintain BUY with a revised TP of INR 800 (47x Sep’27 EPS). Pace of recovery in core portfolio volumes & movement in copra prices will be key monitorables.
* Healthy earnings print with volume growth ahead of Staples peers:
Marico’s 1QFY26 consolidated revenue grew 23.3% yoy to INR 32.6bn led by domestic sales growth of 27%. This was driven by volume growth of 9% (16-qtr high, JMFe: 8%) & price hikes in Parachute/Saffola Edible Oils. International sales grew 12%. GM contracted 533bps to 46.9% (c.60bps below estimate) as copra/vegetable oil costs remain elevated. Staff costs grew 8.4% (3.5% below estimate) while A&P spends & other expenses were largely inline. Resultant EBITDA grew 4.6% yoy to INR 6.6bn (2% above estimate) with EBITDA margin at 20.1% (inline). Lower depreciation/interest & higher other income led to PAT growth of 8.6% to INR 5bn (c.9% above forecast). Management remains confident about double-digit revenue growth in FY26 & operating margin to inch up in the medium term.
* Robust revenue performance across businesses; VAHO surprises positively:
1) Parachute volumes declined 1% due to consumption titration amidst multiple rounds of price hikes & ml-age reduction (cumulative increase 60%+, price hike of c.30% in 1QFY26); pricingled growth was c.32% resulting in sales growth of 31%. 2) Saffola Edible Oils grew 28% led by pricing; volume growth improved to mid-single-digit as company passed benefit of recent import duty cuts on vegetable oils to consumers. 3) VAHO recovered to lowdouble digit growth (+13% yoy) after witnessing 8 quarters of weakness. This was driven by sustained traction in mid and premium segments. 4) Newer businesses’ performance – Foods grew 20% driven by Saffola Oats; Premium Personal Care continued its strong growth momentum led by Digital-first portfolio (reached INR 850+cr. ARR vs INR 750cr ARR at exit of FY25). 5) International business saw strong growth of 19% in CC terms (c.12% in INR terms) – MENA region saw robust 42% CC growth driven by Gulf region and Egypt. Bangladesh grew +17%, while South Africa & Vietnam remained muted.
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