FMCG major Marico likely to outperform peers in H2FY25 on brands' growth

From its lows in mid-November, the stock of consumer major Marico is up about 8 per cent in trade and has outperformed its peers. The Nifty FMCG index is up a per cent while the Sensex is flat over this period. The gains for the owner of Saffola and Parachute brands are on expectations that the company will do better than other consumer peers in the second half of FY25. The sales outperformance will be on the back of improvement in both the core brands as well as its growth portfolio. 

 

Nuvama Research is bullish on the company and expects growth to improve to double digits in H2FY25 as compared to 8 per cent growth in Q2. Abneesh Roy and Jainam Gosar of the brokerage said that the double-digit revenue growth in H2FY25 for India business would be aided by strong pricing growth in Parachute (10 per cent) and Saffola edible oils (20 per cent with the full impact in Q4FY25). 

 

While domestic volume growth is likely to be resilient at 5 per cent plus year-on-year (Y-o-Y) in H2 aided by higher penetration in rural and urban regions, international revenue, including Bangladesh, is expected to grow in low double-digits in constant currency terms. Margins are, however, likely to come down by 150-200 basis points Y-o-Y due to high inflation, gradual price hikes, and focus on volume growth. There could be volume gains as smaller players may not be able to manage the rising costs. Rural recovery is another volume trigger, says the brokerage, which has a target price of Rs 740. 

 

  What is adding to the growth prospects is the company’s diversification into high- growth categories. Amit Purohit of Elara Securities believes that Marico’s strategy to diversify its portfolio toward future-oriented categories and reduce dependency on the hair & edible oil categories is playing out well. This would aid in better sales growth and modest margin improvement once the new portfolio scales up, he adds, pegging a Rs 752 target for the stock. 

 

Diversification into high-growth areas (Foods and D2C brands) which account for 20 per cent of the domestic portfolio has also helped the company beat the slowdown blues which is impacting the sector.  Says Purohit of Elara Securities, “Despite slowing urban consumption, the company has been less affected by the recent slowdown, given that its growth portfolio targets affluent consumers.”

 

Prabhudas Lilladher Research, however, is cautious on the stock and believes that the Street is underestimating the potential impact of current political turmoil in Bangladesh on the operations of Marico Bangladesh (MBL) over the medium term.

 

MBL accounts for 23.3 per cent of Marico's consolidated profits and 28 per cent of its cash and investments. 

 

Given the instability in Bangladesh, it expects the road to recovery will be delayed and longer. They also expect a sharp hike in inflation to impact demand in the medium term.

 

 “While we are not negative on the domestic business of Marico, valuations at 46.9 times its FY26 and 43.6 times its FY27 estimated earnings per share, do not leave much scope for a negative surprise in a critical territory like Bangladesh,” says analysts led by Amnish Aggarwal of the brokerage.