Marico Q2 Review: Brokerages Optimistic Despite Margin Contraction, Volume Growth Moderation — Here's Why

FMCG major Marico Ltd. has received a vote of confidence from global brokerage firms, even as the company reported a contraction in margins and a largely unchanged bottom line for the September quarter.

Shares of the company remain in focus on Monday, after its profit rose 0.7% to Rs 420 crore, in comparison to profit of Rs 423 crore in the previous quarter.

Revenue advanced by 30.7% year-on-year for the three months ended September, reaching Rs 3,482 crore. Operating income, or earnings before interest, taxes, depreciation, and amortisation rose 7.3% year-on-year to Rs 560 crore.

The Ebitda margin contracted to 16.1%, on a particularly high base, as sharp inflation in key commodities also exerted incremental pressure in this quarter.

Goldman Sachs has reiterated its 'buy' call on Marico, setting a 12-month price target of Rs 830, implying a 12.3% upside. Jefferies stated that Marico's pricing power was evident, while hiking its target price from Rs 865 from Rs 850.

Volume growth in India moderated to 7% in the second quarter from 9% in the previous quarter because of trade disruption during the GST rate rationalisation transition. Even so, Goldman Sachs and Jefferies both highlighted that Marico's volume growth was significantly ahead of most FMCG peers that reported low single-digit growth.

The value-added hair oils portfolio led the charge with 16% annual growth, while digital-first brands accelerated sharply. The foods business, however, slowed to 12% growth, and Parachute volumes dipped 3% amid a steep price increase.

The brokerages believe the moderation in the foods segment is transient, with management expecting growth to return to 20% levels by the final quarter of this fiscal, once cost-efficiency initiatives are completed. The company has previously slowed growth in foods temporarily to prioritise profitability before re-accelerating.

Looking ahead, both reports indicate growth in operating income to pick up in the second half of this fiscal and improve further in FY27, supported by strengthening trends in Parachute and other core categories.