Marico Q4 Results: Profit Beats Estimates, Easing Input Costs Aid Margin

Marico Ltd.’s quarterly profit rose, beating estimates, on the back of improving demand and margin expansion amid softening input costs.

Net profit attributable to the maker of Parachute hair oil and Saffola cooking oil rose 20% year-on-year to Rs 302 crore in the quarter ended March, according to its exchange filing. That compares with the Rs 285.48 crore consensus estimate of analysts tracked by Bloomberg.

The reported net profit was aided by a one-time gain of Rs 28 crore, related to the sale of land in one of the overseas locations.

After adjusting for the exceptional item, the company's net profit rose 12%.

Marico Q4 FY23 Highlights (YoY)

• Revenue up 4% to Rs 2,240 crore, against the Rs 2,253.19 crore forecast.

• Operating profit rose 14% to Rs 393 crore, as compared with the estimated Rs 398.3 crore.

• Margin stood at 17.5% versus 16%. Analysts had pegged the metric at 17.7%.

• Advertising and promotion spend at 9.4% of sales, was up 3% to Rs 210 crore.

• During the quarter, Marico's material costs were at 52.6% of sales, lower than 55% in the previous quarter, and 56% in Q4 of last year.

• International business posted 16% constant currency growth, driven by MENA (37%), South Africa (21%), Vietnam (16%), and Bangladesh (9%).

India's fast-moving consumer goods industry has seen a 3.1% increase in volume growth, after declining for the past five consecutive quarters, said Marico, citing Nielsen data. Rural volume growth turned positive at 0.3%. However, it still lags urban, which grew 5.3% in the January-March period.

"The rural sector has most likely bottomed out as the declining trend reversed in this quarter," the company said. Urban consumption has remained steady in the past few quarters, even as the company said, "signs of visible buoyancy are awaited". Marico expects easing input prices and retail inflation to aid the improving trend in the coming year.

For Marico, the underlying domestic volume growth in the fourth quarter was 5%, as compared with 4% in the previous quarter. Revenue for the domestic business was at Rs 1,683 crore, up 1.75% year-on-year, lagging volume growth due to price cuts taken in 'Parachute' coconut oil and 'Saffola' edible oil during the year, in response to falling input prices.

"The revenue growth will inch up, as pricing comes into the base from the second half of FY24 onwards," Marico said in its investor presentations.

Among the sales channels, general trade declined in low single digits.

However, modern trade and e-commerce grew in double digits, according to the company. Given the recurring trend, the contribution of e-commerce and modern trade to domestic revenues went up to 29% in fiscal 2023.

From a category perspective, Marico's packaged foods, which have been relatively resilient through the year, continued to drive growth. The company expects gradual pick-up in overall consumption to accelerate the pace of growth in the foods business. Home and personal care sales remained muted, even as it moved into positive territory after six quarters.

Category-Wise

• Parachute Rigids posted 9% volume growth as consumers continued to shift from loose to branded products, amid stability in consumer pricing and as copra prices prevailed through the quarter. The brand gained 70 basis points in volume market share during the quarter. Volume growth was 6% on a four-year CAGR basis.

• Value-Added Hair Oils ended the year with value growth of 13% in Q4, driven by volumes. The franchise logged 60 basis points gain in value market share. The four-year value CAGR stood in mid-single digit, lower than medium term- aspirations, owing to the extended slowdown in rural segment. The mid and premium segments continue to fare better than the bottom of the pyramid.

• Saffola Edible Oils witnessed a mid-single digit volume decline on a high volume base sustained during the outbreak of the Omicron variant of Covid-19 last year. However, the franchise continued to witness healthy offtake growth during the quarter. Revenue decline was in low teens, given the pricing interventions during the year. As a result, the Saffola franchise, comprising refined edible oils and foods, declined 9% in value terms.

• Foods grew 18% in Q4 to close near the Rs 600 crore revenue mark in FY23. Saffola Oats continued to anchor the growth, as it maintained its leadership position in the Oats category. Newer offerings such as Honey, Soya Chunks, Peanut Butter, Munchiez and Mayonnaise witnessed healthy traction. Marico expects the franchise to close above the Rs 850 crore revenue mark in FY24, driven by acceleration in urban consumption, continued heathy traction in the core and new launches, incremental growth from step-up in market development and brand building spends and a promising innovation pipeline.

• Premium Personal Care had another reassuring quarter with 20%-plus growth and closed just shy of Rs 350 crore in revenues in FY23.

• Digital-first Portfolio also scaled up well, in line with expectations. The current portfolio is on course to clock Rs 400 crore in revenue run rate on exit basis in FY24.

Among the key inputs, Marico said that copra declined by 7% year-on-year but was 2% higher sequentially. "Prices should remain rangebound with a downward bias in the near-term as the flush season begins," it said.

Others such as rice bran oil was down 16% sequentially and 22% over the previous year, crude derivatives such as Liquid Paraffin was up 21% year-on-year, while high density polyethylene or HDPE was down at 2% YoY.

"As we move into next year, we expect the pace of growth in volumes, revenues and earnings to move in the right direction, aided by an evolving portfolio of entrenched and budding franchises, distribution expansion and adequate investments in market development and brand building," said Saugata Gupta, managing director and chief executive officer at Marico.

In the domestic business, the company seeks to drive volume-led growth and market share gains in the near term. "We expect gross margin to expand by 200-250 bps and operating margin to move up by more than 100 bps in FY24 with easing raw material prices, aggressive cost management and a more favourable portfolio mix," according to Gupta.

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

The company, Gupta said, aims to maintain consolidated operating margin above the threshold of 19% over the medium term.

Marico shares closed 0.8% lower, as compared with a 1.2% decline in the benchmark Nifty 50. The results were announced after market hours.