Marico Q3 Update: Demand Improves But Rural Recovery 'Not Discernable'

Marico Ltd. witnessed a "slight improvement" in domestic volumes in October-December over the preceding quarter buoyed by the festive fervour and the winter season.

Urban and premium categories kept growing at a steady rate, but the recovery in rural demand was not "as discernible" because retail inflation stayed high, the company that makes Parachute coconut hair oil said in a business update for the third quarter that was posted on the bourses.

In India, the company expects to report mid-single-digit volume growth in the third quarter.

That comes after 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, reeling under an inflation-led slowdown, domestic volumes fell by 3% in the previous quarter, dragged by Parachute hair oil and Saffola oil.

However, things have improved. Parachute Coconut Oil posted "low single-digit" volume growth after a visible recovery in December as consumer pricing stabilised with copra prices firming up in the off-season, the company said.

The Saffola franchise grew in "double digits" in value terms, with Saffola Oils posting "low-teen volume growth". The food segment, according to the company, is also continuing its strong run. Value-added hair oils, however, had a subdued quarter, which was mainly a reflection of tepid sentiment in the rural and mass personal care categories. Premium personal care, on the other hand, witnessed "double-digit" growth in line with sectoral trends.

Its international business is expected to report high single-digit growth in constant currency growth, even though it will have to deal with the effects of currency depreciation and high inflation in key markets, the company said.

Bangladesh, according to the company, held steady despite challenging macros, while the other markets performed well.

"Our strategy of increasing the total addressable market in key markets through the acquisition of female personal care brands, Purité de Prôvence and Ôliv, will provide a fillip to the Vietnam business," it said.

Overall, Marico said its consolidated revenue in the quarter grew in the low single digits on a year-on-year basis. "In view of the lower revenue growth, we expect a modest growth in operating profit," it said.

Both gross and operating margins, it said, are expected to improve both on a sequential and annualised basis on account of stability in key input prices and consumer pricing across key franchises.

"Easing of commodity inflation, higher crop realizations, ongoing government interventions, and likely stimulus from the upcoming Union Budget augur well for the sector in the calendar year," said Marico.

Marico still aspires to deliver sustainable and profitable volume-led growth over the medium term, enabled by the strengthening brand equity of its core franchises and scaling up new engines of growth.

Marico is likely to report 3% consolidated sales growth and 7% growth in operating profits on a year-on-year basis, according to Abneesh Roy, executive director, Nuvama Institutional Equities. The international business, he said, is expected to register 8–9% growth in constant currency sales.

Shares of Marico declined 1.03% on Wednesday, compared to the 1.04% decline in the benchmark Nifty 50.