Marico Q2 Update: Volumes Grow In Single Digits On Lingering Rural Pain
Subdued rural demand, coupled with a move to cut prices of its Saffola edible oil, also impacted the company's revenues in Q2.
Marico Ltd.'s domestic volumes grew in low single-digit percentage range over the previous year, dragged by a persisting weakness in rural demand.
"During the quarter, demand trends largely mirrored the trends observed in the preceding quarter," the maker of Parachute hair oil said in its business update for the July-September quarter on Wednesday.
Rising food prices and below-normal rainfall distribution in some regions impeded the anticipated recovery in rural demand, according to Marico. The packaged consumer goods maker, however, is hopeful of a recovery in consumption trends, particularly in rural areas, in the second half of the fiscal. This is thanks to retail inflation levels staying within the Reserve Bank of India’s target range, a hike in MSPs, a healthy sowing season, easing liquidity pressures, and government spending.
Marico's domestic volumes grew 3% in the preceding quarter.
Subdued rural demand, coupled with a move to cut prices of its Saffola edible oil, also impacted the company's revenue in the September quarter.
The consolidated revenue was "marginally" lower on a year-on-year basis, dragged by pricing corrections in key domestic portfolios over the last 12 months, said Marico. "Moreover, currency depreciation in some of the overseas markets had an adverse effect on the reported INR growth in the international business," the company said in a statement. This marks the company's second quarterly drop in revenue this fiscal.
Rural consumers typically make up about two-thirds of consumer goods makers' sales, according to Bizom, which tracks retail industry trends.
FMCG companies' sales in the hinterlands, where consumers have been the worst affected by higher prices of everyday essentials, are often seen as a gauge of the country's economic recovery by investors and analysts.
Category-wise, Marico said, sales volumes in its Saffola edible oil and Parachute coconut oil grew in low single-digits, aided by price cuts, while the value-added hair oils segment grew in low single-digit in value terms.
The international business delivered double-digit constant currency growth, exhibiting sustained resilience amid a volatile global operating environment, the company said.
Still, gross margins would see a "robust" expansion during the quarter on a year-on-year basis as prices of key inputs, such as copra and edible oil, stayed in a favourable range, according to Marico. However, the company warned that edible oil prices are now exhibiting some volatility.
This is despite the company significantly ramping up its advertising and promotional spend to build both its core brands and new categories.
Marico also expects "healthy" operating profit margin expansion, leading to low double-digit operating profit growth. It further expects to deliver "profitable volume-led growth" over the medium term, supported by a gradual pickup in volume and topline growth in the domestic business and healthy momentum in the international business.
