Buy Marico Ltd for the Target Rs.850 By Emkay Global Financial Services Ltd
Healthy topline to sustain in 2H; earnings to see improvement
We retain BUY on Marico, with Sep-26E TP of Rs850, on 50x P/E, as we maintain that the company would continue clocking better volumes backed by execution. In Q2, its core portfolio saw weak volume owing to healthy pricing, while new businesses continued to aid the company in attaining 7% volume growth. Given the sharp inflation in copra prices, gross margin contracted by 810bps YoY (to 42.6%), though the positive operating leverage helped containing EBITDA margin contraction at 350bps (to 16.1%). Copra prices, after correcting 15% from the Jul-peak, have been stable. We expect prices to be steady, with limited seasonal arrivals (next flush expected from Mar-26). Factoring this in, we lift our revenue and cut our margin expectations for FY26.
Healthy pricing in Parachute helped the >30% growth in Q2
Marico has reported 31% consol revenue growth. Domestic business (77% of consol revenue) saw 35% growth, with 7% volume growth. In Parachute, the company saw 59% growth with 62% price growth. The VAHO portfolio saw 16% growth, with doubledigit volume growth (with higher salience of the premium portfolio). Saffola edible oil saw 19% price-driven growth. The Foods portfolio saw 12% growth –.growth is likely to be slow in Q3, affected by focus on profitability driving strategic actions and expected to revive from Q4. Overall, Foods saw an ARR of over Rs11bn. Premium personal care saw an annual revenue run-rate expanding from Rs3bn to Rs3.25bn. The digital first portfolio has crossed annual revenue run-rate of Rs10bn vs Rs8.5bn in Q1FY26 and Rs5.25bn in Q2FY25. International revenue saw 19% growth, with constant currency growth at 22% for Bangladesh and 27% for MENA. The company has largely maintained its growth aspirations and sees healthy growth in 2HFY26.
Inflationary copra hurt margin delivery; adj PAT growth at 8% in Q2
With Parachute contributing ~29% to consol revenue (MRCO saw 113% YoY copra price inflation, per the Coconut Development Board), the company reported 815bps YoY consol gross margin contraction. Given the healthy price-driven topline growth, we expect positive operating leverage to aid in containing EBITDA margin contraction at 350bps YoY to 16.1%. Ahead, we see moderate improvement in margin from a slight easing in copra prices. Post-season, we now see copra prices remaining elevated and easing from Mar-26E. This will help Marico’s competitive position, where it can sustain healthy topline growth and gradually build margins, keeping competition at bay. As the new initiatives improve profitability, we believe the overall margin would see a positive shift.
Focus on execution – 2H outlook better; maintain BUY
We continue to see thrust on execution (refer to AR FY25 analysis), where Marico is looking to protect and accelerate structural growth despite headwinds. We like Marico, given its attentiveness to align the business with evolving consumer needs. Additionally, focus on profitable growth is likely to help reduce dependence on profit.
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