Buy Marico Ltd for the Target Rs. 850 by Motilal Oswal Financial Services Ltd
Improving growth trajectory; all eyes on GM recovery
* Marico (MRCO) reported a consolidated revenue growth of 31% YoY (in line) in 2QFY26. Domestic revenue growth was 35% YoY with volume growth of 7%. The GST transition and trade pipeline adjustments impacted revenue growth by ~2%. International growth was 19% YoY (+20% CC).
* Domestic revenue growth was driven by strong core category growth and sustained success for its new growth drivers. Parachute coconut oil (PCNO) posted a 59% YoY value growth with a 3% volume decline, primarily driven by price hikes. Copra prices have already corrected by about 15% from the peak levels seen in 2Q, and management expects a more meaningful softening from March onward.
* Value-added Hair Oils (VAHO) sustained growth recovery and registered 16% revenue growth. Excluding the Amla segment, where the company continues to face intense competition, VAHO recorded double-digit volume growth. Saffola oil clocked flattish volume growth, with revenue growing 19% YoY, led by pricing. Foods delivered 12% YoY growth. Premium Personal Care sustained its healthy growth trajectory.
* Gross margin contracted 810bp YoY to 42.6% (est. 45.2%); it was at a 16- quarter low and was hit by a surge in copra prices. EBITDA margin contracted 350bp YoY to 16.1%. EBITDA grew 7% (est. 7%). Management expects to deliver double-digit EBITDA growth in 2HFY26 and foresees 200– 250 bps margin expansion in FY27 as RM prices start to ease.
* Revenue growth is expected to remain in double digits in FY26 in the medium term (unlike other FMCG peers), driven by pricing, expanded direct reach, and strong performance in Foods and Premium Personal Care.
* Although rising input costs may weigh on near-term margins, the outlook for 2HFY26 remains positive. The company aims to deliver a double-digit PAT CAGR over the next two years, and we project 13% PAT CAGR over FY25–28E. Given the sustained growth trajectory, we believe the stock’s premium valuation is likely to be sustained. We reiterate our BUY rating on the stock with a TP of INR850 (based on 50x Sep’27E EPS).
In-line earnings despite a sharp dip in GM; volume growth at 7% YoY
* Sustaining strong revenue growth: Consolidated net sales grew by 31% YoY to INR34.8b (est: INR34.2b) in 2QFY26. Domestic revenue growth was 35% YoY, and volumes grew 7% YoY (est. +6% YoY). Marico witnessed steady demand trends in India during the quarter, except for the transitional disruption in trade channels ahead of the implementation of new GST rates in September. International business delivered 20% CC growth, led by Bangladesh/MENA/Vietnam/ South Africa, which posted 22%/27%/6%/1% CC growth.
* Pressure on margins continued: Consolidated gross margin contracted by a sharp 810bp YoY to 42.6% (est. 45.2%), as sharp inflation in key commodities (copra). Copra and vegetable prices remained at elevated levels, while crude oil derivatives remained range-bound.
* During 2QFY26, MRCO’s employee expenses rose 2% YoY, ad spending was up 19% YoY, and other expenses also increased 10% YoY. EBITDA margin contracted by 350bp YoY to 16.1% in 2QFY26 (est. 16.6%). EBITDA grew by 7% YoY (est. 7%).
* MRCO’s EBITDA/PBT/PAT grew 7%/8%/7% YoY to INR5.6b/INR5.5b/INR4.2b/ (est. INR5.6b/INR5.5b/INR4.2b).
* In 1HFY26, revenue/EBITDA/APAT grew 27%/6%/8%.
Highlights from the management commentary
* MRCO highlighted that volume growth should be better than 2Q in the coming quarters, supported by distribution gains and improved consumer offtake.
* Copra prices are likely to meaningfully correct from March onwards and will be rangebound for the next 2-3 months. Historically, whenever the industry enters a deflationary cycle after a prolonged inflationary period, the company sees 200–250bp margin expansion, and it expects a similar improvement in FY27.
* Towards the end of the quarter, True Elements expanded its ready-to-eat range with new high-protein, high-fiber protein bars and overnight oats, introduced across online channels.
* The profitability of these brands has improved steadily, with Beardo expected to surpass a double-digit EBITDA margin this year and Plix delivering single-digit EBITDA while scaling rapidly.
Valuation and view
* We slightly cut our FY26E EPS due to the recent copra inflation, but we maintain our FY27 and FY28 EPS estimates.
* The improvement in market share gain, accelerated growth in foods and premium personal care, healthy growth in the international business, and normalization of prices are likely to help MRCO deliver a better revenue print in FY26.
* To improve its distribution reach, MRCO has also started Project SETU, which helps drive growth in GT through a transformative expansion of its direct reach.
* We model a 15%/14% revenue and EBITDA CAGR during FY25-28E and reiterate our BUY rating on the stock with a TP of INR850 (based on 50x Sep’27E EPS).
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