Motilal Oswal Initiates Coverage of Marico with a Buy Recommendation, Targeting Rs 900

Marico Sees Relief from Raw Material Inflation

The ongoing geopolitical challenges are expected to have significant implications for cost inflation, particularly in the form of crude derivatives, across the FMCG sector. With raw material availability issues and a weak rupee exacerbating import costs, Marico appears relatively less affected by the overall raw material volatility compared to its peers.

Copra, which accounts for approximately 50% of Marico's raw material basket, is currently witnessing a deflationary trend. Prices have corrected by 40% from their peak, and after registering 130% inflation over the past two years, copra prices are expected to continue their deflationary trend. Additionally, crude derivatives, including packaging, constitute 18-20% of total raw materials, resulting in a relatively lower impact on Marico's operating margins.

As a result, Marico is among the few companies where operating margins are projected to expand in FY27. The company's management has guided a base case EBITDA margin expansion of 150-200bp in FY27, and we believe this guidance remains achievable in the current environment.

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Marico's Performance

With a strong track record of delivering returns, Marico has been one of the best-performing stocks among FMCG peers over the last two years, with a return of 50%. We reiterate our BUY rating on the stock with a target price of INR900, premised on a 50x P/E on FY28.