Buy Marico Ltd for the Target Rs 1,050 by Motilal Oswal Financial Services Ltd
Robust start to FY27; growth momentum intact
* Marico (MRCO) witnessed a strong start to FY27 with consolidated revenue growth of 23% YoY (in line) in 1QFY27. Domestic revenue growth was 21% YoY, with volume growth of 11%. International revenue growth was 15% YoY CCG (+29% INR). Demand remained steady in 1Q, supported by healthy economic activity. Management continues to monitor inflation and monsoon developments amid evolving El Niño forecasts.
* GM expanded by 30bp YoY to 46.6% (in line) and improved 220bp QoQ owing to recent corrections in copra prices. While crude oil prices are steady, vegetable oil prices remain inflationary amid the ongoing geopolitical developments. EBITDA margin expanded by 40bp YoY to 20.7% (in line). Management expects to deliver high-teen EBITDA growth in FY27.
* MRCO expects to sustain high single-digit volume growth in India business in FY27, aided by both core portfolio and new growth engines. International business is expected to sustain its mid-teen constant-currency growth. At the consolidated level, the company aims to achieve double-digit revenue growth, crossing INR150b in FY27. In the medium term, MRCO aims to cross the INR200b revenue mark by FY30 (10-11% CAGR), along with mid-teen EBITDA CAGR. Management expects EBITDA margin to expand 140-150bp. We model EBITDA margins of 18.8%/20.0% for FY27/FY28.
* The company aims to deliver a double-digit revenue CAGR over FY26-30, backed by strong volume growth and CC growth in teens in international business with mid-teen EBITDA CAGR. In line with its aspiration, we model a CAGR of 13% in revenue and 22% in EBITDA over FY26-28E. Given the stable growth trajectory, diversifying revenue streams and strong focus on TAM expansion, we believe the stock’s premium valuation is likely to be sustained. The stock is trading at 52x/46x FY27E/FY28E EPS. MRCO has delivered 20% return in the last six months and remains one of our top picks in our coverage universe. We reiterate our BUY rating on the stock with a TP of INR1,050 (based on 50x Mar’28E EPS).
Highlights from the management commentary
* In PCNO, MRCO has already reduced prices by ~10% in non-price point packs following the correction in copra prices.
* Crude has corrected moderately from its peak in 1Q; however, prices remain volatile. Vegetable oil prices inflated further and remain at elevated levels.
* QC now contributes approximately 5% of total India business revenue.
* MRCO targets double-digit consolidated revenue growth in FY27 with revenue expected to cross INR150b.
* Management expects ~150bp operating margin expansion in FY27, considering the uncertain operating environment.
* Management guided for a consolidated effective tax rate of 18% for FY27, which is expected to increase to 19-20% in FY28.
Valuation and view
* We largely maintain our EBITDA estimates for FY27 and FY28, but the company’s lower tax rate guidance led to an increase in our EPS estimates for FY28.
* MRCO plans to cross INR150b in revenue in FY27 and INR200b by FY30. It aims to deliver a double-digit revenue CAGR over FY26-30, backed by strong volume growth and CC growth in teens in the international business with a mid-teen EBITDA CAGR.
* Diversification is steadily improving the resilience of the international portfolio, with Bangladesh’s revenue share declining from ~50% in FY20 to ~45% in FY26 and expected to reduce further to ~35% by FY30.
* To improve its domestic distribution reach, MRCO has also started Project SETU, which helps to drive growth in GT through a transformative expansion of its direct reach.
* In line with its aim of delivering a double-digit revenue CAGR and a mid-teen EBITDA CAGR over FY26-30, we model a CAGR of 13% in revenue and 22% in EBITDA over FY26-28E. Given the stable growth trajectory, diversifying revenue streams and strong focus on TAM expansion, we believe the stock’s premium valuation is likely to be sustained. MRCO remains one of our top picks in our coverage universe. We reiterate our BUY rating on the stock with a TP of INR1,050 (based on 50x Mar’28E EPS).
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