Marico Delivers a Resilient Q2 Amid Challenging Environment

Marico Limited, one of India’s leading consumer goods companies, announced its results for the second quarter ended September 30, 2023. The company delivered a fairly resilient performance despite mixed demand trends and a challenging macro environment.

Consolidated Revenue from Operations stood at ₹2,476 crore, registering a marginal decline of 1% year-on-year. This was led by a 3% volume growth in the domestic business, offset by price deflation of 8%. The International business continued its strong momentum, clocking 13% constant currency growth.

For the first half of FY2024, Revenue from Operations was ₹4,953 crore, down 2% over same period last year. Underlying volume growth in the India business stood at 3% for the half year.

Commenting on the performance, Saugata Gupta, Managing Director and CEO, said, “The domestic and overseas businesses have delivered a fairly resilient performance amidst a challenging operating environment in the first half of the fiscal. We have made substantial progress towards achieving the diversification objective set for the year with Foods and Digital-First portfolios scaling up on expected lines.”

Domestic Business – Mixed Demand

The India business posted a turnover of ₹1,832 crore in Q2 FY2024, down 3% year-on-year, primarily due to pricing corrections undertaken over the past 12 months to pass on the benefit of lower input costs to consumers.

During the quarter, demand trends in the FMCG sector largely mirrored trends in the preceding quarter with gradual recovery. Urban sentiment improved sequentially but rural demand was impacted by high food inflation and uneven monsoons.

Against this backdrop, Marico’s domestic business showed resilience with most categories posting healthy offtake growth. The company continues to gain market share and distribution reach in key portfolios.

Among channels, Modern Trade and E-commerce grew at over 20% while General Trade sales declined in low single digits. Share of GT channel is now less than 25% of domestic sales.

Parachute, Saffola

The Parachute coconut oil franchise grew by 1% in volume terms despite subdued consumer sentiment, especially in rural markets. This was primarily led by loose-to-branded conversions. With copra prices softening, Parachute had taken pricing cuts over the past year, which will annualize by Q3 FY2024. Consequently, value growth is expected to mirror volume growth going forward.

The Saffola edible oils franchise declined 12% in value terms due to price reductions. However, volume growth was in low single digits despite high inflationary pressures, indicating resilient brand strength. Saffola foods category maintained momentum, growing 25% with leadership in oats and steady growth in honey.

Value Added Hair Oils impacted

The Value Added Hair Oils portfolio grew by 1% in value terms, mirroring the relatively slower recovery in discretionary mass personal care categories. However, on a 4-year CAGR basis, value growth was 4%, indicating healthy long-term trends.

While bottom-of-pyramid segments were muted, the company saw traction in premium hair nourishment and hair fall control propositions. Marico continues to gain market share and penetration on a MAT basis in the VAHU category.

The premium personal care segment posted steady growth with exit annualized run-rate of over ₹350 crore in Q2 FY2024. The digital-first brands under this portfolio are scaling up rapidly.

The Foods and Premium Personal Care portfolio put together now contributes ~20% of the domestic turnover, indicating success of Marico’s portfolio diversification strategy.

Profitability expands on input cost tailwinds

Gross margin expanded significantly by 685 bps year-on-year to 65.5% in Q2 FY2024, the highest level in 26 quarters. This steep expansion was led by tailwinds in input costs – copra prices softened by 2% YoY while liquid paraffin, HDPE and rice bran oil also saw double digit declines.

Marico continues to invest behind brand building with adspent up 26% YoY. A&P spends was 10.6% of sales during the quarter.

Consequently, EBIDTA margins expanded by 272 bps YoY to 20.1% in Q2 FY2024. Bottomline grew by 17% with PAT at ₹353 crore. The India business operating margin was even higher at 21.6%, an expansion of 320 bps over last year.

Robust Overseas Growth Across Key Markets

Marico’s international business maintained its growth momentum, delivering 13% constant currency growth in Q2 FY2024. For the first half, international business posted 11% CC growth despite challenges in some markets.

Bangladesh, the largest market, grew by 2% in constant currency terms amidst a tough macro-economic environment. Vietnam continued its healthy run, growing by 13% CC. The MENA business posted strong 34% CC growth with both Gulf and Egypt growing in double digits.

South Africa grew 23% in constant currency led by the ethnic hair care portfolio. The balance Exports and NCD businesses posted 18% growth during the quarter.

Profitability of the international business also showed strong improvement with operating margin expanding by 270 bps YoY to 25.1% in Q2 FY2024.

Near Term Outlook

Summing up the overall performance, Marico management said that good progress has been made in the first half towards portfolio diversification through accelerated scale-up of Foods portfolio and building digital-first brands.

Gross and operating margins have also expanded healthily despite increasing brand investments. The company remains committed to driving growth across all key parameters and delivering margin expansion for the full year FY2024.

For the India business, gradual recovery in rural demand is expected along with continued urban uptick. International business is also anticipated to sustain its double-digit constant currency growth trajectory in the second half of FY2024.

With pricing declines tapering off, consolidated revenue growth is likely to move into positive territory in H2 FY2024. Gross margin expansion is now estimated at 350-400 bps in FY2024 versus 250 bps earlier guided. Operating margin is on track to expand by ~200 bps this fiscal.

Medium Term Growth Drivers

Over the medium term, Marico aspires to deliver 13-15% revenue growth in the domestic markets with 8-10% volume growth. The target for international business is to maintain double-digit constant currency growth.

In domestic markets, Marico will focus on driving premiumization and scaling up new engines of growth like Foods and Premium Personal Care to achieve accelerated growth.

In core categories like Parachute, Saffola and Hair Oils, the company aims to drive market leadership through strengthening brand equity and widening distribution. Portfolio diversification will be enabled by leveraging digital and execution capabilities.

In international markets, the company will continue to drive growth by focusing on the core franchises, expanding into new territories and categories, and creating execution synergies across regions.

Consolidated operating margins are expected to structurally improve and remain above 19% over the medium term as operating leverage kicks in.

Marico remains confident of delivering sustainable profitable volume-led growth over the medium to long term, enabled by strengthening brand equity and an innovation pipeline.