Marico Q2 Results: Net Profit Drops, Misses Estimates

In Q2, Marico reeled from low rural demand and wrestled with high cost inventory.

<div class="paragraphs"><p>Marico's Parachute hair oil bottles on shelves inside an APMC market in Vashi, Mumbai. (Source: Vijay Sartape/BQ Prime)</p></div>
Marico's Parachute hair oil bottles on shelves inside an APMC market in Vashi, Mumbai. (Source: Vijay Sartape/BQ Prime)

Marico Ltd.’s second-quarter profit fell, missing estimates, as the company reeled under low demand from rural areas and wrestled with high-cost inventory along with rupee depreciation in multiple geographies.

The net profit of the maker of Parachute hair oil and Saffola cooking oil fell 3% over the previous year to Rs 301 crore in the quarter ended September, according to the company's exchange filing. That compares with the Rs 327.4-crore consensus estimate of analysts tracked by Bloomberg.

The year-on-year drag in net profits is also due to a higher effective tax rate after the expiration of fiscal benefits in one of its manufacturing units.

Sequentially, the company reported a 18.86% decline in net profits.

Marico Q2 Highlights (YoY)

  • Revenue was up 3% at Rs 2,496 crore, against the Rs 2,538.76 crore forecast.

  • Operating profit rose 2% to Rs 433 crore, compared with the estimated Rs 453.8 crore.

  • Margins stood at 17.3% versus 17.5%. Analysts had pegged it at 17.9%. However, it contracted sequentially from 20.6%.

  • Advertising and promotion spend rose 9.8% to Rs 213 crore.

  • Revenue from India-based business rose 1.4% as price hikes in hair oil and premium personal care portfolios were more than offset by price cuts in Parachute coconut oil and Saffola cooking oil. On a quarter-on-quarter basis, however, it fell 1.3% to Rs 1,896 crore.

  • International business maintained its strong run, delivering 11% growth in constant currency terms driven by South Africa (16%) and Middle East and North Africa (11%). Southeast Asia and Bangladesh clocked 10% growth each, in constant currency terms.

Volumes in India's FMCG sector declined for the fourth straight quarter in July-September 2022, as value growth continued to be price-led, according to NielsenIQ India estimates.

For Marico, domestic volumes declined by 3% over the previous year, dragged by Parachute hair oil and Saffola oil. The company, however, gained market share in more than 90% of the portfolio.

“The first half ended on a fairly positive note despite the operating environment bringing little cheer," said Managing Director and Chief Executive Officer Saugata Gupta.

Segmentwise Performance

  • Parachute Rigids' volume was down 3%. It declined 11% in value terms mainly due to muted consumption trends and sluggishness in loose-to-branded conversions, as softening in copra prices extended beyond expectations.

  • Parachute held its market share in volume terms and gained 20 basis points in value market share.

  • The management expects volumes to stabilise in the second half of FY23, as copra prices and consumer pricing harmonise over the course of the next couple of months.

  • The Saffola franchise, comprising refined edible oils and foods, grew 4% in value terms, subdued by substantial price cuts.

  • Value-added hair oils posted value growth of 2%, owing to downtrading and weak consumption sentiment, especially in rural areas.

  • Foods grew 26% in value terms with healthy growth in the oats franchise and sustained traction in some of the recent introductions.

  • The food franchise is poised to reach revenues of Rs 650 crore in FY23 and Rs 850-1,000 crore in FY24, the company said.

  • Premium personal care segment clocked 40% value growth.

  • Digital-first portfolios, Beardo and Just Herbs, are scaling up in line with expectations. Its annual recurring revenue stood at Rs 250 crore.

The food-to-beauty products maker passed on the benefit of falling prices of key raw materials, including copra, edible oil, and crude oil to protect volumes and market share, albeit consuming relatively higher cost inventory during the quarter. This impacted the firm's operating margins.

During the quarter, copra prices dropped 4% sequentially and 20% year-on-year. The company expects prices should remain range-bound in the near term with seasonal supplies slowing down.

Rice bran oil was down 15% sequentially and 11% year-on-year.

However, vegetable oil prices have firmed up in the last fortnight of October, and are likely to be volatile in the near term.

Crude derivatives, such as liquid paraffin and high-density polyethylene, were up 48% and 20%, respectively, year-on-year.

Both are also likely to remain firm in the near term and trend in line with crude oil prices, the company said.

Consumer packaged goods from Nestle India Ltd. to Adani Wilmar Ltd. were hammered by the Covid-19-led rise in the cost of raw materials.

Meanwhile, cash-starved rural households have been opting for cheaper, unbranded alternatives even as branded cooking oil makers, such as Marico and 'Fortune' brand-owner Adani Wilmar Ltd., reduced prices.

Demand sentiment trended along similar lines as the preceding quarter, with some signs of positivity in the last month amid festivities, the company said. Premium discretionary segments, however, fared better.

The company expects consumption trends, particularly in rural areas, to improve in the second half of the fiscal aided by government subsidies, moderated commodity inflation pressures, and a reasonably healthy spatial distribution of monsoons.

Higher crop realisations and the festive season should also provide a fillip to overall sentiment, the company said.

Marico expects to deliver mid-single digit domestic volume growth and maintain the double-digit growth momentum in its international business in the second half of the fiscal.

Over the medium term, the company aspires to deliver 13-15% revenue growth on the back of 8-10% domestic volume growth in India business and double-digit constant currency growth in the international business.

"We will aim to maintain consolidated operating margin above the threshold of 19% over the medium term," it said.

Among the sales channels, the company said, general trade remained weak, while the divergence in rural and urban growth grew starker with the former reeling under persistent inflationary and liquidity pressures. Modern trade and e-commerce, on the other hand, grew in double digits.

Shares of Marico fell 0.2% after the results were declared, compared with a 0.36% rise in the benchmark Nifty 50.