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Sales momentum sustained, EBITDA growth to improve in 2H

Marico’s 2QFY26 earnings print inline with pre-quarter update. Domestic revenue growth of 35% (UVG of 7%) was best in class among the Staples peers. Volume growth was driven by new franchises (Foods & Premium Personal Care portfolio) and VAHO, while value growth was boosted by steep pricing growth in Parachute/Saffola edible oils. Margin compression was predominantly driven by copra inflation led impact on Parachute profitability. Going ahead revenue momentum is likely to remain healthy (25% growth for FY26E, implies 20%+ growth in 2H), gross margins to improve QoQ benefiting from copra moderation (15% from peak) resulting in double digit EBITDA growth for 2H (vs. mid-single digit in 1H). Marico has navigated inflation cycle well by demonstrating strong pricing power in core. Moreover it also has other margin levers (margin expansion in Foods/D2C & recovery in VAHO) which have helped to cushion some impact in FY26.With scale & increased focus on profitability in this portfolio along with normalisation of Parachute margins, Marico’s overall margins could be higher (vs. historical margins) over next 2-3 years. Marico remains our preferred pick in the space. Maintain BUY with revised TP of INR 850 (48x Dec’27E EPS).

* Revenue inline, operating performance tad better vs estimates: Marico’s 2QYF26 consol. revenue grew by c.31% YoY to INR 34.8bn driven by domestic sales growth of 35%. This was led by volume growth of 7% (inline) and price hikes in core portfolio in response to sharp inflation in key RM prices. International sales grew 19% (in INR terms). GM compressed 814bps to 42.6% (135bps below estimate), on a high base, due to sharp inflation in Copra prices. Staff cost, A&P and other expense grew 2.3%, 19% and 10.4% (4%-8% below our estimates), respectively. Resultant EBITDA grew c.7% to INR 5.6bn (3% above our estimate) with margins down 350bps YoY to 16.1%. This growth was offset by higher depreciation and lower other income led to flat PAT growth to INR 4.2bn. Adjusted PAT (one-offs in base quarter) grew by 8% YoY. Management expects a 25% consolidated revenue growth for FY26E and double digit EBITDA growth for 2HFY26.

* Pricing led sales growth in Core portfolio; VAHO surprises positively while Foods growth was below expectation: 1) Parachute volumes declined 3% due to ml-age reduction and nonsupply to institutional business. Post normalizing for ml-age reductions instead of raising prices, the portfolio’s volume remained flattish. Resultant sales growth was 59%. 2) Saffola Edible Oils volume remains flattish due to elevated pricing environment. The brand sales grew 19% YoY led solely by pricing growth. 3) VAHO saw second consecutive quarter of double digit sales growth (+16%) despite impact of GST transition. This was supported by mid and premium segments of the portfolio. 4) Newer businesses’ performance – Foods grew 12% and crossed ARR of INR 1,100 Cr driven by continued market share gain by Saffola Oats; Premium Personal Care sustained strong growth momentum led by Digital-first portfolio (reached INR 1,000 Cr ARR). 5) International business saw strong growth of 20% in CC terms (19% in INR terms) – MENA region delivered 27% CC growth driven by Gulf region and Egypt. Bangladesh grew +22% CC, while Vietnam & South Africa grew 6% CC and 1% CC respectively. NCD and Exports delivered strong growth of 53%.

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