Marico Q2 Results: Profit Up 17.3%, Revenue Dips On Price Cuts, Weak Demand

Marico Ltd.'s second quarter profit rose in line with estimates, but revenue dipped for the second consecutive quarter albeit marginally, on account of subdued rural demand and a move to cut prices of Saffola edible oil.

The net profit of the maker of Parachute hair oil rose 17.3% over the previous year to Rs 360 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 357.02-crore consensus estimate of analysts tracked by Bloomberg.

Marico Q2 FY24 Highlights (Consolidated, YoY)

• Revenue fell 1% to Rs 2,476 crore, as against a forecast of Rs 2,499.47 crore.

• Operating profit rose 14.8% to Rs 497 crore, as compared with the estimate of Rs 497.93 crore.

• Margin widened to 20.1% versus 17.3% despite higher advertising spends. Analysts had estimated it at 19.9%.

• Gross margin expanded by 685 basis points YoY and 50 bps sequentially to reach its highest level in 26 quarters, owing to softer input cost.

• Ad spends rose 26% over the previous year.

• India business revenue fell 3.37% to Rs 1,832 crore owing to price drops.

• International business posted 13% constant currency growth, led by MENA (34%), South Africa (23%), Vietnam (13%) and Bangladesh (2%). This was despite a challenging geopolitical scenario and macroeconomic headwinds in select markets.

For Marico, the underlying domestic volume growth in the July-September quarter was 3%, exactly same as in the previous quarter.

Majority of the portfolio witnessed healthy trends across offtakes, with 85% of the business either gaining or sustaining market share and penetration, according to Marico.

During the quarter, the demand trends in the domestic FMCG sector stayed largely in line with the preceding quarter.

Among peers that have so far declared their quarterly results, Hindustan Unilever Ltd. reported a volume growth of 2%—the slowest in the last six quarters—while Nestle India Ltd. and ITC Ltd. also recorded low-to-mid single digit volume growth on the back of sluggish rural sales and increased local competition.

While urban sentiment improved sequentially, instances of higher food inflation and uneven rainfall distribution led to a slower-than-expected pace of recovery in rural demand, Marico said in a statement.

The company, however, remains optimistic about a gradual recovery in demand sentiment aided by the onset of the festive season and continued government spending, with commodity inflation largely in check and price cuts implemented across categories. Marico expects the improvement to reflect in the performance of its domestic business in the second half of the fiscal.

From a category standpoint, Marico's packaged foods maintained a healthy growth trajectory given its high urban salience and continued to outpace the largely mass home and personal care categories.

• Parachute coconut oil, comprising 31% of sales, saw a 1% dip in value growth while volume rose 1% amid weak sales.

• The Saffola franchise, accounting for 29% of sales, declined 12% in value terms owing to price cuts in edible oil over the last 12 months. Saffola edible oil posted low-single digit volume growth, holding onto a strong base, despite vegetable oil prices remaining volatile.

• Value-added hair oil, accounting for 22% of sales, saw 1% value growth, reflective of a slower recovery in mass personal care categories. The premium categories, however, saw good traction.

• Premium personal care delivered healthy growth and is on track to contribute 10% of the domestic revenue in FY24.

• The digital-first portfolio clocked exit annual recurring revenue of Rs 350 crore in Q2.

• The foods category continued its steady growth trajectory with 25% value growth over the previous year. Newer categories like peanut butter and mayonnaise have also been gaining traction.

Among key input prices, copra was up 1% sequentially and down 2% on a year-on-year basis aided by good supplies. As copra enters into an off-season ahead of the festive months, Marico expects a gradual pick-up in loose to branded conversions to aid volume growth in the near term.

Rice bran oil stayed volatile during the quarter with a 6% increase over the previous month. The prices were, however, down 23% over the last year in line with the correction in the vegetable oil complex in the last 12 months. Liquid paraffin was down 5% YoY, while HDPE fell 10% YoY.

With pricing cuts coming into the base, the value growth should mirror volume growth from the third quarter, according to the company.

Among the sales channels, modern trade and e-commerce grew 20% over last year, while general trade declined in low-single digits, Marico said.

Shares of Marico closed 0.62% lower before the results were announced as compared with a 0.52% gain in the benchmark Sensex.