Shares of Marico Limited, one of India’s leading FMCG companies, fell by over 2.5% on January 6, 2025, amid concerns over margin pressure caused by inflation in key raw materials. The company’s commentary during its third-quarter business update highlighted challenges stemming from rising input costs and the impact of competitive pressures on volumes.
Margin Pressure and Growth Outlook
In its Q3FY25 update, Marico cited higher-than-anticipated increases in copra and vegetable oil prices as the primary drivers of gross margin contraction. Despite these challenges, the company emphasized its continued investments in brand-building and consumer franchise expansion. Key highlights include:
- Parachute Coconut Oil:
- Maintained low double-digit revenue growth despite rising copra costs.
- Sequential decline in volumes due to a challenging pricing environment.
- Price hikes in December to counter persistently high input costs.
- Saffola Edible Oil:
- Delivered high double-digit revenue growth, driven by steady volumes.
- Navigated price hikes caused by inflation in vegetable oil costs.
- Value-Added Hair Oils:
- Experienced a slight decline in volumes due to competitive pressures.
- Recovery supported by strong performance in the mid and premium segments.
- Foods and Digital-First Brands:
- Continued to show robust growth momentum, bolstering the company’s diversification strategy.
Analyst Views and Market Reactions
Market analysts remain cautiously optimistic about Marico’s long-term prospects despite short-term challenges:
- CLSA:
- Projects a 4.8% YoY growth in operating profit for Q3FY25, indicating modest expansion.
- Expects consolidated revenue growth in the mid-teens for the quarter and double-digit growth for the full year.
- Citi:
- Maintains a Buy rating with a target price of Rs 750 per share, reflecting confidence in Marico’s resilience and growth potential.
- Nuvama:
- Lists Marico as a top pick in the consumption space, highlighting its ability to navigate challenging market conditions.
Stock Performance
On January 6, 2025, Marico’s stock traded at Rs 640.30, down 3.12% on the NSE. The day’s low and high ranged between Rs 633.15 and Rs 675.05, with trading volumes exceeding 1.5 million shares. The decline underscores market concerns over the company’s near-term margin pressures.
Revenue and Strategic Insights
Marico’s consolidated revenue growth continues to reflect its robust product portfolio and strategic initiatives:
- Resilient Performance:
Despite rising input costs, flagship brands like Parachute Coconut Oil and Saffola Oil demonstrated resilience through strategic price hikes and consistent demand. - Focus on Premiumization:
- The company’s mid and premium segments showed strong recovery, especially in value-added hair oils, amid stiff competition.
- Growth in Emerging Categories:
- Marico’s Foods and Digital-First Brands sustained momentum, contributing significantly to overall revenue growth.
Conclusion
Marico’s Q3FY25 performance highlights the dual challenge of rising input costs and competitive pressures. While these factors have weighed on margins, the company’s strategic focus on premiumization, brand-building, and digital growth offers a roadmap for resilience. Analysts remain optimistic about Marico’s long-term prospects, even as near-term headwinds impact stock performance.
Disclaimer
This article is for informational purposes only and does not constitute financial or investment advice. Please consult your financial advisor before making investment decisions.
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