Steady demand, improving margins remain positive for Marico stock

In its operational update for the third quarter (October-December) of 2025-26 (Q3FY26), Marico seemed optimistic. The fast-moving consumer goods (FMCG) sector witnessed steady demand trends during the quarter, and the company continued to invest in brand-building and portfolio diversification.

 

Apart from lower goods and services tax (GST), easing inflation and falling copra prices may lead to improved margins. The Q3FY26 revenue growth is estimated to be in the high twenties year-on-year (Y-o-Y). Domestic volume growth is in high single digits Y-o-Y. Parachute held its ground with volumes marginally down, which was offset due to price hikes, while Saffola Oils had muted performance.

 

But value-added hair oils (VAHO) delivered robust growth in the twenties, with strong performance in mid-premium segments, and GST rationalisation. Premium personal care (PPC), including digital-first brands, also beat expectations. Foods is also likely to see higher growth over the next six months. International business saw strong momentum, having constant currency growth in the early twenties, with Bangladesh offering a positive surprise. Vietnam and South Africa saw double-digit growth.

 

On the raw material front, copra prices have corrected by 30 per cent from peak levels, and are expected to move down more. Vegetable oil prices are elevated, but the costs of crude oil derivatives are down. Gross margins are expected to improve sequentially, having bottomed out in Q2FY26.

 

Operating profit growth is expected to reach double digits on a Y-o-Y basis, which is in line with guidance and better than the mid-single-digit growth in the first half (H1) of FY26. Apart from moderation in input prices, Marico may be able to exploit other margin levers such as margin expansion in Foods, digital-to-consumer (D2C), and higher growth rates in VAHO, which should push earnings up over FY26-FY28.

 

Marico, therefore, remains on track to achieve its full-year revenue guidance of above 25 per cent Y-o-Y. The H2FY26 performance will see recovery of margins after H1FY26 margin was hit by steep inflation in copra prices.

 

The weakening trend in copra prices and the lower prices in the crude derivatives basket are positives. It’s possible the FY26 margin may see some compression over FY25, but the recovery in H2 will minimise the full-year dip and continuing margin recovery is expected through FY27. The company will continue its marketing to accelerate portfolio diversification.

 

Higher growth in the high-margin VAHO business is expected along with a scale-up in Foods. PPC is likely to scale – it currently contributes 16-17 per cent of consolidated sales. The target here is to achieve high single- to low double-digit margin in FY27 to boost overall gross and operating margins.

 

Analysts are moving towards consensus estimate of consolidated sales growth of 27-28 per cent Y-o-Y in Q3FY26, with India volume growth of around 7.5 per cent. The gross margin is expected to improve quarter-on-quarter (Q-o-Q) by around 100-150 basis points (bps), but it will still be lower Y-o-Y. Operating and net profit will grow by 10-11 per cent Y-o-Y.

 

Parachute coconut oil contributes 26 per cent of consolidated sales, with large price hikes of around 60 per cent in the last 12 months, and volumes down by around 1 per cent Y-o-Y. The revenue from Parachute should be up by 55-60 per cent Y-o-Y in Q3FY26.

 

VAHO contributes 14 per cent of consolidated sales, and sales growth would be in late twenties Y-o-Y. Guidance is that growth rates would sustain above double-digits, given Project SETU (which improves distribution), supported by GST rate cuts.

 

International business, which contributes 25 per cent of consolidated sales, reported early-twenties constant currency sales growth, much better than consensus expectations, especially since the key Bangladesh market outperformed despite instability.

 

Guidance is that easing inflation, above-normal monsoon, healthy crop outlook, and policy stimulus will support improvement in sentiment. It maintains its double-digit revenue growth guidance for FY26. Management aspires to double FY25 sales and reach ₹20,000 crore over the next five years.

 

The one area of concern is that, like most leading consumer players, it has a high valuation and misses could spark selling. Monitorables would include volume compression due to price hikes and weaker-than-expected growth in new portfolios.