Healthy growth outlook keeps market experts bullish on Marico's stocks

Most fast-moving consumer goods (FMCG) majors have struggled to maintain growth amid weak urban consumption. However, Marico has a coherent growth and product diversification strategy, which may lead to outperformance going forward.

 

In Q3FY25, consolidated gross margin contracted 180 bps year-on-year (Y-o-Y) to 49.5 per cent due to inflationary pressure with copra prices up 38 per cent Y-o-Y and rice bran oil up 19 per cent. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin contracted 210 bps to 19.1 per cent Y-o-Y. Adjusted profit after tax (PAT) grew 4 per cent Y-o-Y.

 

The company aims at double-digit growth, driven by improving growth in core segments, rapid scaling of new-age businesses, and steady gains in international markets.

 

It is focussed on value-added products, in foods and premium personal care, with a target of 20-25 per cent compound annual growth rate (CAGR) in these segments. Demand for Parachute and Saffola branded products is steady despite price hikes (15-20 per cent).

 

Within Saffola, Foods will contribute over half of revenues (currently at 30 per cent) over the next 4-5 years. In digital, Plix and Beardo are showing strong growth.

 

The company is expanding direct reach in general trade (GT) through Project SETU as well as pushing quick commerce, which accounts for 3 per cent of India's sales. Project SETU will increase direct distribution from 1 million to 1.5 million outlets by FY27.

 

The company expects double-digit revenue growth in FY26. High input costs may compress margins, but the long-term outlook is driven by improving product mix and premiumisation.

 

Management says rural demand is improving, while urban demand is expected to recover over several quarters as inflation eases. Tax relief benefits provided to individuals in the recent Union Budget may aid urban consumption. Parachute Coconut Oil (PCNO) is expected to deliver 5-7 per cent volume growth. The anniversarisation of price hikes will start from Q2FY26 onwards.

 

The value-added hair oil (VAHO) segment is expected to gradually recover. Within the VAHO category, the mid and premium segments will outperform. The Foods category is seen posting 20-25 per cent CAGR. Saffola brand sales are split, with 70 per cent coming from oils and 30 per cent from foods. Management expects the Foods segment to contribute over 50 per cent over the next 4-5 years, driven by growth of 20-25 per cent in foods, versus high single digits in edible oils.

 

The Foods and Premium Personal Care portfolios are expected to post 20-25 per cent CAGR. These segments have an average run rate (ARR) of Rs 1,900 crore, contributing 21 per cent to total sales (M9FY25). Plix is expected to become a Rs 500+ crore business in FY26, with positive margins. Beardo is on track to achieve double-digit Ebitda margins in FY25. True Elements and Just Herbs show growth momentum, reducing cash burn. The digital-first portfolio is projected to reach an ARR of Rs 600 crore by FY25-end and 2x the FY24 ARR in FY27. Hence, Foods and Premium Personal Care may contribute 25 per cent to domestic revenue by FY27.

 

International business posted 7 per cent growth Y-o-Y in rupee terms for M9FY25 with 13 per cent growth in constant currency. Marico expects double-digit constant currency growth and stable margins.

 

Quick commerce (QC) accounts for 3 per cent of sales, and is growing at 50+ per cent Y-o-Y. Along with e-commerce and Modern Trade, QC has helped strengthen new segments. Project SETU covers 11 states and organised channels contribute 30 per cent, while General Trade contributes 63-64 per cent.

 

The product portfolio is shifting focus to value-added products in the food segment, premium personal care, and digital business. The company is open to inorganic opportunities in food and personal care.

 

Marico implemented price hikes of 15 per cent in PCNO and 20 per cent in Saffola edible oil starting Q2FY25. The company expects strong pricing growth in Q4FY25 and Q1FY26, maintaining operating margin guidance at 20 per cent for FY25. Analysts have price targets of up to 20 per cent ahead of the current price of Rs 640.