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Inflationary copra prices, a near-term concern

We maintain our long-term positive view on Marico with Jun-26E TP of Rs810 (on 50x P/E), given improved execution. However, the company’s near-term performance is likely to be impacted by the inflationary copra prices in both, India and Indonesia. Amid unprecedented surge in copra prices, Marico’s nearterm margin in India (1/3rd of revenue) and in Bangladesh (3/5th of revenue) is likely to be stressed. However, we expect cyclical pressures to ebb with improvement in market supplies in coming months, in line with management expectations. We uphold our expectations of a margin recovery in 2H, wherein the company is likely to manage growth with better volumes and improved margins; this would lead to double-digit earnings growth. We see risk to our margin and growth assumptions for FY26E, if the copra price inflation persists.

Sharp inflation in copra prices worrying

Indian copra prices (Rs260/kg) were hit by unprecedented inflation this time around. Category incumbents attribute the sudden surge in copra prices to delayed drying of coconut, given the early monsoon. As copra supplies improve, prices would sharply ease. Amid the sudden and sharp inflation, The Solvent Extractors Association of India (SEA; association of the vegetable oil industry and trade) has urged the central government to lift the ban on copra imports (import allowed only for export purpose), to arrest inflationary pressure. In Indonesia too, copra is inflationary, though the quantum is much lower at ~35% (per International Coconut Community) vs ~70% in India (per Coconut Development Board), as of last 6M. SEA, in its memorandum to the authorities, has cited pest attacks as the cause of lower yield this year and hence inflation, which is concerning.

Inflationary copra to have a bearing on the company’s India business margins

Marico’s India business margin profile has a strong link with copra price movement, per its history. With focus on diversification, Marico has reduced its dependence on India revenue, via its Parachute rigid pack, to ~1/3rd vs 2/5th sales a decade ago. In the current inflationary cycle, as the price premium (now at 2x vs 10Y average at 2.75x) has reached the lowest level, we expect the company to rationalize volumes on expectation of easing in copra prices ahead. We see Marico taking a measured approach in future, as managing high-cost trade inventory is onerous. Marico has historically coped with inflation with relatively stable pricing, though the recent surge in copra prices (up ~70% in the last 6M) is aligned with monthly price hikes (~55% price hikes in the last 6M).

We maintain BUY, on improved execution

Leveraging the learnings from its Bangladesh business, Marico has stepped onto the diversification path in India and created a portfolio that better aligns with new-age consumer needs, as seen in the faster growth. We uphold a positive view on Marico with unchanged TP of Rs810, on 50x P/E. We see risk to our margin and growth assumptions for FY26E, if copra price inflation persists.

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