Robust FY25 volume outlook to sustain gains for consumer major Marico

From its lows last week, the stock of consumer major Marico is up 7 per cent on the back of a better than expected June quarter performance and robust outlook going ahead.

In a pre-quarter update, the management indicated that domestic volume growth should witness an improvement in FY25, while other segments (growth portfolio, international business) too would see traction going ahead.

The near-term trigger is strong sales and operating performance for Q1FY25.

While the company indicated that consolidated revenue growth would be in high single digits, brokerages peg the same at around 7-8 per cent. The growth in the overall business came despite the residual impact of pricing cuts in the Saffola oils portfolio and currency headwinds in overseas markets.

In the domestic business, analysts expect sales growth to be 5 per cent with most of the growth coming from the volume front. The volume growth is an improvement on the March quarter (3 per cent growth) and was delivered post adjustments in distributor stock levels to enhance their return on investments and a certain degree of wholesale channel destocking to ensure smoother direct reach expansion.

The company reported that Parachute coconut oil posted low single-digit volume growth (5 per cent sales growth) in the June quarter and this is likely to pick-up for the rest of the year given the consistently healthy trends in offtake growth. Saffola oils delivered mid-single digit volume growth (sales growth may be flattish as volume growth being offset by price cuts) amidst marked stability in input and consumer pricing.

In value added hair oils, the company had a soft start (4 per cent revenue fall) due to competitive headwinds persisting in the bottom of the pyramid segment, while the mid and premium segments fared relatively better. This portfolio is also expected to revert to growth from the next quarter.

In addition to strong revenue growth performance, operating profit growth performance too was robust at about 11 per cent. Input prices in most cases be it copra, edible oil and crude oil derivatives traded in a range. Gross margins could expand compared to the year ago quarter due to a favourable product mix.

While gross margins would rise by 222 basis points to 52.2 per cent, operating profit margins are expected to improve by 63 basis points to 23.8 per cent, according to analysts led by Abneesh Roy of Nuvama Research. The brokerage, which believes that overall demand sentiment saw a gradual improvement, has a buy rating with a target price of Rs 640. 

Going ahead for FY25, management expects improvement in domestic volume

growth – aided by uptick in Parachute volumes and Saffola edible oils, acceleration in growth businesses (Foods & D2C personal care), traction in international business and initiatives around expanding direct distribution.

What could add to Marico’s incremental revenues is the tie-up with dermatological solutions provider, Kaya. Marico will have exclusive rights to scale Kaya’s range of personal care products beyond its clinics. Motilal Oswal Research believes that the initiative will serve as an additional growth driver for Marico’s premium personal care-led digital business and further accelerate the portfolio diversification agenda of its India business.

Emkay Research has, however, maintained its reduce rating on the stock. Nitin Gupta and Soham Samanta of the brokerage find the renewed focus on distribution expansion, portfolio enrichment, and enhancing margin encouraging. However, they believe that valuations at 43 times its FY26 earnings capture the positives.