Marico Q1 Update: Pick Up In Rural Demand Remains Elusive, Revenue Growth Dips

Tapering price growth and weak volumes, particularly in India's rural markets, hurt Marico Ltd.'s performance during the April-June quarter.

Consolidated revenue declined to the low single digits on a year-on-year basis, the owner of Parachute and Saffola brands said in its quarterly update filed with the exchanges on Wednesday.

"[The growth] was dragged by pricing interventions in key domestic portfolios last year and further pricing drops in Saffola edible oil," it said.

In Q1, the domestic business was affected by significant trade destocking in Saffola edible oil, in reaction to sharply falling vegetable oil prices. The business was also impacted because of channel inventory adjustments in core portfolios triggered by the last leg of trade scheme rationalisation.

As a result of this, domestic volumes grew in the low single digits.

While Parachute coconut oil business saw a minor volume drop, it was a flat quarter for the value-added hair oil business.

The Saffola business, however, reported a low double-digit volume growth aided by price cuts that made its cooking oil 30% cheaper from a year ago.

"While primary volume growth was marred by one-time internal and external factors, we expect a visible pick-up from the coming quarter, given the sustained healthy trends in offtakes, market share, and penetration across our key franchises," the company said in a statement.

The relatively new food portfolio continued its strong run, while premium personal care, including the digital-first portfolio, remained steady in the first quarter, Marico said.

The consumer goods maker said that signs of demand pick-up on a sequential basis were not clearly visible during the quarter. "While urban markets were steady, the anticipated pick-up in rural demand remained elusive," it said.

However, factors like moderating headline inflation, a hike in MSPs, easing liquidity pressures, and the forecast of a near-normal monsoon fuel hopes of a gradual recovery in rural demand during the year, it said.

As for the international business, Marico expects to report high single-digit constant currency growth during the quarter, with most geographies showing resilience in a volatile global operating environment.

The silver lining appears to be an expansion in margin, thanks to easing raw material costs. Among key inputs, copra prices stayed in a favourable zone, edible oil prices declined sharply, and crude derivatives remained firm, the company said. "As a result, gross margin is expected to expand materially on a year-on-year as well as a sequential basis."

Expansion in operating margin is expected to drive double-digit growth in the bottom line, it said.

The company maintains expectations of delivering sustainable and profitable volume-led growth over the medium term, enabled by the strengthening of brand equity in core franchises and the scaling up of new engines of growth.

Analysts at Nuvama Institutional Equities estimate Marico to report a revenue dip of 2-3% and 11% growth in net profit as compared with the previous year.

Domestic volume is pegged to grow 2–3% YoY, the brokerage said.

Peer Godrej Consumer Products Ltd. has also released its quarterly update. The Good Knight-maker sustained strong demand and estimated its domestic volumes to rise in double digits during the June quarter.

Nuvama pegs Godrej Consumer's India sales to grow 9.5%, with volume growth of 11% due to negative pricing growth in soaps.

Shares of Marico closed 2.33% higher on the BSE Sensex as compared with a flat Nifty 50.