FMCG major Marico Ltd has signalled a potential turnaround in its profitability, with its December-quarter business update suggesting the worst of the margin squeeze may be over. This optimism stems primarily from a significant correction in the price of copra, a key raw material, easing the severe cost pressures that plagued the company in the first half of the fiscal year.
Margin Recovery Driven by Softer Input Costs
The company's financial health is poised for a sequential improvement in the third quarter of fiscal year 2026 (Q3FY26). Copra prices have retreated by roughly 30% from their recent peaks and are anticipated to trend lower in the coming months, especially with the flush season ahead. While margins are still expected to show a decline compared to the same period last year, they are likely to rise from the multi-quarter lows witnessed in Q2.
Brokerage firm JM Financial Institutional Securities estimates Marico's Q3 gross margin at approximately 44%, marking an increase of 135 basis points from the previous quarter. Furthermore, the Earnings Before Interest, Tax, Depreciation, and Amortization (Ebitda) margin is projected to rise to 16.5%. This sets the stage for a double-digit growth in operating profit for Q3, a notable improvement from the mid-single-digit growth recorded in the first half of FY26.
Resilient Volumes and Strong Revenue Growth
Despite implementing cumulative price hikes to combat inflation, Marico's volume-led growth has demonstrated resilience. Domestic volumes grew in the high single digits during Q3, slightly better than the 7% growth seen in Q2. The performance of its flagship brand, Parachute coconut oil, was closely watched. Volumes for Parachute dipped following sharp price increases but held up better than initial market fears. The Saffola portfolio, however, reported a muted quarter.
On the revenue front, consolidated year-on-year growth for Q3 is estimated to be in the high 20s, surpassing JM Financial's earlier forecast of around 24%. A key driver was the value-added hair oils (VAHO) segment, where growth accelerated to the 20s from 16% in Q2. This surge was fueled by expansion in mid-premium products, wider distribution reach, and GST rationalization. The international business also remained robust, posting constant currency growth in the early 20s, led by Bangladesh, with Vietnam and South Africa showing strong double-digit rebounds.
Outlook, Valuations, and Key Risks
Overall, Marico appears on track to meet its FY26 revenue growth guidance of 25% or more. Beyond the relief from raw material costs, the sustainability of margin recovery will also depend on the company's portfolio mix. Corrective actions to improve margins in the food portfolio and scaling up profits in newer, digital-first brands are expected to broaden the earnings base over the long term.
The market has responded positively to these developments. Shares of Marico Ltd hit a fresh 52-week high of ₹768.05 on Monday, reflecting investor confidence. The stock currently trades at 46 times its estimated FY27 earnings, indicating that valuations are pricing in a significant margin recovery. Analysts caution that the key for investors will be to track if this margin improvement can be sustained.
Emkay Global Financial Services noted, "If copra prices continue to ease, we may see price cuts from the company in Q4FY26." They also highlighted that any sharp swing in copra prices would be a negative for Marico, underscoring the ongoing volatility in input costs as a primary risk to the company's recovery narrative.
