Marico top-line outlook strong but margin worries weigh on profits

Fast-moving consumer goods (FMCG) major Marico delivered a strong performance in the first quarter of 2025-26 (Q1FY26). While margins were impacted by raw material inflation, most of its key categories delivered, helping it outperform its peers on the volume and revenue fronts.

 

Despite the pressures on profitability, most brokerages expect the company to post a double-digit revenue growth and a gradual easing of cost inflation towards the end of the year. Given the strong prospects for its categories and double-digit earnings growth over the next couple of years, premium valuations are expected to sustain going ahead.

 

Led by domestic volumes, which hit a 16-quarter high and a pricing-led value growth in the India business, the company posted a 23 per cent year-on-year (Y-o-Y) jump in consolidated sales. International sales saw a growth of 12 per cent, and 19 per cent on a constant currency basis.

 

In the core categories, what helped the company register strong top-line growth was the pricing action both in Parachute coconut oil and Saffola edible oil. In Parachute, the company posted a 31 per cent value growth while volumes were down 1 per cent. The value growth in Saffola came in at 28 per cent. Despite the sharp price hikes taken by the company, Saffola delivered a mid-single-digit volume growth while Parachute volumes were down marginally. The company took a sequential price hike of 30 per cent in Parachute towards the end of Q1FY26 and the full impact would come through in the September quarter (Q3FY26).

 

There was a recovery in the value-added hair oil (VAHO) segment with volume in mid-single-digits and revenues rising 13 per cent. The company is facing severe competitive pressures in the Amla segment, excluding which volume growth for VAHO was in double digits. The foods business saw a growth of 20 per cent Y-o-Y. The company is eyeing an eight-time jump in this business from its FY20 base levels, which is currently five times of that base. 

 

Given the pricing actions and the volume expectations, Nuvama Research has increased its FY26-FY27 revenues by 1.9-2.4 per cent while reducing the earnings by 2.6 per cent for FY26. Analysts led by Abneesh Roy remain positive on the company led by VAHO recovery, and scale-up in foods and digital-first brands.

 

Motilal Research expects revenue growth to remain in double digits in the medium term (unlike other FMCG peers), driven by pricing, expanded direct reach, and strong performance in foods and premium personal care.

 

Antique Stock Broking too expects Marico’s performance to be driven by distribution-led growth in the core portfolio, higher proportion of profitable food & premium personal care products (from 20 per cent to 25 per cent) over FY24-FY27, and a recovery in VAHO.

 

While the top-line show was good, the operating performance was not. Margins at the gross level fell by 530 basis points (bps) to 46.9 per cent. This was at a 10-quarter low and was on account of a spike in raw material costs. The operating profit margin dropped by 360 bps to 20.1 per cent. While the company expects some of the cost pressures to sustain, prices of key inputs such as copra have started to soften and are currently down by 12 per cent from the peak.

 

Although rising input costs may weigh on margins, the outlook remains positive. InCred Research believes that Marico’s focus on driving volume growth, addressing general trade channel issues, and scaling new verticals is in the right direction. Rohan Kalle and Nishant Bagrecha of the brokerage say, “Despite near-term gross margin headwinds from copra inflation, calibrated pricing and improvement in sales mix should aid operating profit margin improvement to around 20 per cent.”