Marico Q1 Update: India Volumes Decline As Consumers Downtrade Edible Oil

Marico Ltd. expects “mid-single-digit” decline in domestic volume for the quarter ended June as steep price hikes led to downtrading across two of its largest brands.

The performance was particularly dragged by a sharp drop in Saffola Oils, the company said in its quarterly business update released on the bourses. “Saffola Oils declined in double digits, having to contend with high in-home consumption in the base quarter and significant downtrading visible from super premium to mass segment in edible oils.”

Excluding Saffola Oils, the India business posted marginal volume growth, it said.

Other categories such as Parachute Coconut Oil recorded a “minor volume decline”. The brand, it said, passed on more value to consumers towards the second half of the quarter amid steady deflation in copra.

Value-added hair oils grew in “low single digits” by value despite weak consumption sentiment, especially in rural areas.

Marico's international business, however, was a saving grace, delivering a “high-teen constant currency growth”, aiding consolidated revenue that grew “marginally higher” over the year earlier during the first quarter of the ongoing fiscal. “All markets exhibited strength and stayed on the path of sustained profitable growth, despite the prevailing global uncertainty and inflationary pressures.”

Key Highlights

• Among key inputs, copra prices remained soft and crude oil prices cooled. But Marico consumed higher cost inventory in this quarter.

• Gross margin is expected to expand year-on year but remain near the same levels as the preceding quarter.

• Advertising and promotion spends grew in low teens over the year ago.

• Net profit growth is expected to lag operating profit growth.

• Digital-first brands remained on track and met internal aspirations.

• Foods also had a slow quarter due to high in-home consumption base in oats and a sharp decline in immunity-led categories like honey.

• Premium personal care posted robust growth across all segments.

In India, the fast-moving consumer goods sector continued to witness tepid demand amid rising retail inflation, according to the statement. “Current trends indicate that consumers titrated consumption in some non-essential categories and either downgraded among brands or switched to smaller packs in the essential categories.”

Premium discretionary categories, however, fared “relatively better because of a lower base and lower consumption dip in the upper income consumer segment”.

During the quarter, Marico said it focused on maintaining threshold margin over volumes in the face of “unprecedented” input cost inflation, supply-chain issues and the “undesirable” effect of price hikes on spending.

The company expects operating margin to expand, leading to “reasonable” operating profit growth year-on-year. The effective tax rate will be higher by 250-300 basis points in FY23 due to expiration of fiscal benefits in one of the manufacturing units, dragging down net profit, it said.

Over the medium term, however, the company expects to deliver sustainable and profitable volume-led growth.