Healthy growth outlook, market share gains positive for Marico

Marico may buck the industry trend with the fast-moving consumer goods (FMCG) major reporting strong growth and favourable commentary in a weak quarter for the industry.

The company reported consolidated revenue growth of 8 per cent year-on-year (Y-o-Y) in Q2FY25.

Domestic revenue growth was 8 per cent Y-o-Y with 5 per cent volume growth (4 per cent in Q1FY25).

International growth was 6 per cent Y-o-Y (13 per cent in constant currency or CC).

The 13 per cent CC growth in international business saw Bangladesh (8 per cent growth) Middle East and North Africa (MENA) (43 per cent), South Africa (20 per cent) and Vietnam (7 per cent) all contributing towards it.

Marico’s Parachute coconut oil posted 10 per cent Y-o-Y growth in value with 4 per cent Y-o-Y growth in volume.

A 4 per cent price hike was also seen at the quarter's end.

Parachute gained 110 basis points (bps) market share.

Value-added hair oil revenue was down 8 per cent Y-o-Y due to weakness in the segment.

Saffola oil had almost flat volume growth, with revenue growing 2 per cent.

The foods segment recorded strong growth of 28 per cent.

The pricing cycle for Saffola turned favourable after eight quarters but there was a hike of 15 per cent to offset rise in import duty in palm oil for the edible oils segment.

In foods, Saffola Oats had mid-teens growth.

The gross margin expanded by 30 bps to 50.8 per cent.

Operating profit margin contracted 50 bps to 19.6 per cent while operating profit grew 5 per cent.

The operating profit margin could rebound in FY26.

Other income was higher than expected at Rs 42 crore due to gains from the sale of fixed assets. Excluding the one-off, other Income increased 10 per cent Y-o-Y.

The H2FY25 may see robust growth due to expanding direct reach under Project Setu (targeting 1 million in FY24 to 1.5 million by FY27).

The company looks to push urban and premium portfolios through organised retail and e-commerce, with differentiated products, more market penetration and market share gains.

The management said rural demand was growing at twice that of urban.

The FMCG sector saw brands hiking prices across the board due to rising commodity costs.

Demand trends from H1FY25 looked encouraging, and a positive growth trajectory is expected for H2FY25.

This is due to a strong monsoon, more government rural spending, and the festival season.

But food and retail inflation remains a concern.

Marico expects consolidated double-digit revenue growth in H2FY25.

The management warned of possible operating profit margin contraction of up to 40-50 bps in H2FY25 due to rising raw material prices.

The hikes in Saffola and Parachute at the end of Q2 are taken to pre-empt possible further raw material cost rise and offset rises in copra prices.

The corporate strategy is to expand the foods and premium personal care segments, targeting 20-25 per cent annual growth for foods between FY24 and FY27 while Project Setu improves distribution.

The digital-first portfolio may hit an annual recurring revenue of Rs 600 crore by FY25-end (around Rs 525 crore estimated by H1FY25), and the aim is to double this by FY27.

Taken together, foods and premium personal care segments should contribute 25 per cent of revenues by FY27 from around 21 per cent in H1FY25.

Most analysts are very positive on the stock with target valuations implying 15-20 per cent upside from the current market price.

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