Marico May Face Margin Pressure On High Input Cost And Brand Investment, Analysts Say

Marico Ltd. will likely face margin pressure going forward due to higher input costs and continued brand investment, analysts said. Marico's management aims to acquire its target for double digit growth in the financial year 2025 with a cautious outlook on margin pressure. Most of the brokerages maintained their rating on the stocks.

Morgan Stanley expects Marico's gross margin will likely decline at a rate higher than management estimated. Its Ebitda growth will likely be modest on an annualised basis. Copra, from which coconut oil is extracted, and vegetable oil prices faced price pressure, while crude oil derivatives remained range bound, the brokerage said in a note.

In the third quarter, pricing drove revenue growth in mid-teens, which is ahead of Morgan Stanley's estimates. The company carried out another price hike at end 30 due to copra inflation in Parachute segment. However, Parachute revenue grew at a low teens aided by pricing interventions, albeit moderated on a sequentially in volume terms, the brokerage said.

In the third quarter, demand trends remained steady with improved rural consumption and stable consumption in urban areas, according to Morgan Stanley.

In the third quarter of financial year 2025, Marico's consolidated revenue growth would likely come in mid-teens versus CLSA's expectation of 9% top-line growth and the consensus expectation of 10% growth. Marico is expecting a modest operating profit growth, against CLSA's expectation of 4.8% growth. The company is expecting to meet its aspiration of full year double-digit growth, the company said in an exchange filing.

However, Marico's India business posted a sequential uptick in underlying volume growth.

According to Macquarie, Marico witnessed market-share gains across key brands. Parachute saw low-teens revenue growth as volume growth moderated slightly on a sequential basis. Saffola oils saw high-teens value growth. Value-added hair oils saw a gradual recovery versus preceding quarter despite continued competitive pressures at the bottom of the pyramid drove a marginal decline in sales.

International business of Marico saw broad-based mid-teens constant currency growth with high double-digit growth in Bangladesh. "Consolidated sales saw mid-teens growth, while operating profit saw modest growth for the quarter."