Marico - On An Improving Trajectory: HDFC Securities

HDFC Securities Institutional Equities

We recently engaged with Marico Ltd.'s management and conducted comprehensive channel checks across India to assess underlying demand trends. Based on these findings, we maintain our high-conviction Buy rating within the staples sector, with a target price of Rs 775 (50 times Dec-26 EPS, reflecting a 20% premium to the five- year average P/E).

We believe the worst is behind us, with factors such as muted volume growth, pricing corrections, challenges in the new business segment, and temporary currency headwinds. We expect Marico to achieve revenue/Ebitda/PAT compound annual growth rates of 9%/11%/11% respectively over FY24-27, given the following:

• the domestic business is firing on all cylinders –

1. Parachute (35% of domestic sales) is expected to see mid-single-digit volume growth on the back of market share gains and conversion from unbranded to branded products, as we have consistently seen in inflationary copra environments. Moreover, we expect double-digit revenue growth in H2 FY25, driven by mid-to-high single-digit price hikes;

2. Saffola edible oil (20% of domestic sales) is projected to deliver volumeled mid-high single-digit growth in the medium term. In our view, any likely pricing action undertaken in H2 FY25 to offset the recent increase in customs duty on selected edible oils should further aid revenue growth;

3. in the VAHO segment, focus on strengthening brand equity in the value segment, along with an uptick in the mid-to-premium segment, is expected to drive improved outcomes.

• We anticipate a significant improvement in the profitability of fast-growing foods and digital-first businesses, which currently contribute 20% of domestic sales.

• Distribution expansion initiatives aimed at expanding reach through project SETU, along with actions to enhance ROI for distributors across India, should further support growth.

• On the global front, we expect the company to sustain its double-digit constant currency revenue growth momentum.

Key risks to our outlook:

1. volatility in the raw material index, as copra still accounts for 35% of the RM basket;

2. increased competitive intensity in the VAHO segment; and

3. recent political unrest in Bangladesh.

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