Marico’s Q4 update shows volume growth is on track
For Marico Ltd, the March quarter (Q4FY23) marked the third consecutive period of year-on-year (y-o-y) volume growth in its India business. The fast-moving consumer goods company’s quarterly update for Q4 said that volumes grew in mid-single digit. Growth in Q2 and Q3 was at 3-4%.
The increase in Q4 comes on the back of strong performance by key product categories such as Parachute Coconut Oil, which saw a high single-digit volume growth.
“Stable and range-bound copra prices helped against competition from unorganized players,” said analysts from Nomura Financial Advisory and Securities (India) in a report dated 3 April. The broking firm believes Marico refrained from undertaking price hikes to garner volumes from unorganized companies in Q4.
On the other hand, volume of Saffola Oils dropped y-o-y due to a high base. This compares to 9% and 13% growth seen in Q2 and Q3, respectively. Further, value-added hair oils clocked double-digit value growth.
Marico’s international business saw mid-teen increase in constant currency terms, thereby maintaining a strong growth trajectory. Here, currency depreciation was a key headwind.
Overall, the company’s consolidated revenue grew in low single-digit y-o-y in Q4. Given steady copra prices and favourable edible oil prices, the company expects Q4 gross margin to rise, which would then have a positive bearing on operating (Ebitda) margin. Ebitda is earnings before interest, tax, depreciation and amortization.
“We do not expect any meaningful margin improvement over the coming quarters with ad spends normalising to pre-covid levels,” said the Nomura report.
To be sure, sustained demand recovery is crucial for a revival in investor sentiment. Shares of the company are down 13.5% from their 52-week high of ₹554.35 apiece seen in September. If the looming risk of El Niño plays out, it could weigh on investors. El Nino leads to a hotter summer and weaker monsoon, and as a result adversely impacts rural economy where demand is currently on a weak footing.
“Marico aspires to deliver sustainable and profitable volume-led growth over the medium term by strengthening brand equity and scaling up new growth engines. We believe the company needs to get much more aggressive on innovation and push its products across channels,” said analysts at Nuvama Research in a report on 3 April.
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