Analyst Concall
Inflation, muted sentiment partly hit Marico's urban demand
This story was originally published at 22:54 IST on 29 October 2024
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--Marico: Jul-Sept food inflation hit demand from lower end of urban market
--CONTEXT: Comments by Marico mgmt in post-earnings conference call
--Marico: See double-digit consolidated revenue growth Oct-Mar
--Marico: Drivers of sentiment muted for middle-class customers currently
--Marico: No consumption tailwinds in urban market, rural demand improving
--Marico: See Saffola oil volume hit only if price rises to INR 200/ltr
--Marico: See Saffola oil volume stable at current price of INR 185/ltr
--Marico: See standalone advertising, promotion spends rise going ahead
--Marico: See FY25 operating margin compressing 40 bps-50 bps
By Steffy Maria Paul
MUMBAI – Consumption in the middle and lower end of the urban market is currently affected due to high food inflation and muted demand, the management of Marico Ltd. said in a post-earnings analyst call Tuesday. The drivers of sentiment for the middle-class customers such as wage increments and job opportunities are currently muted and might likely impact the mass food segment in the short term, the company said.
"Right now, consumption tailwinds are not there. It's just that at least in rural, it's improving, urban it's somewhat a little volatile," the company's management said. The company expects demand in the urban market to recover once food inflation cools down. Going ahead, food and retail inflation trends will be key monitorables, the company said.
Alluding to the rise in prices of copra and the increase in import duty on the edible oil, the company said that cost pressures were slightly higher than what it had anticipated. Owing to this, the company expects its operating margins for 2024-25 (Apr-Mar) to contract 40-50 basis points. However, the company said that it expects its consolidated revenue to achieve a double-digit growth in the second half of the year as well as for FY25.
Talking about the impact of pricing on volumes for its edible oil brand Saffola, Marico said that the company was "comfortable" about the volumes at the current price of INR 185 per litre for its Saffola Gold brand. However, the company feels that a price point near INR 200 per litre might "become a problem."
Marico said that while its standalone advertising and promotional spending have declined during the last two quarters, due to investments in core categories and increased focus on pricing and trade mobilisation, the company expects this to improve going ahead and see "upward trends" for advertising and promotional spending at the standalone level. Marico's standalone advertising and promotional spend during the quarter was INR 1.17 billion, down 15.8% on year. The company's standalone advertising and promotional spend during the June quarter was INR 1.06 billion, down 10.9% on year. The company's consolidated advertising and sales promotion expense for the latest quarter was INR 2.90 billion, up 8.2% on year.
While the growth in the company's value-added hair oil segment remained sluggish during the quarter amid persistent competition in the base income segment, Marico expects this to ease out. "...this is the worst as far as VAHO (value-added hair oil) will be concerned. We will definitely have better performance going ahead," Marico's management said. During the quarter, the company's value-added hair oils segment fell 8% on year in value terms but gained around 110 bps in the value market share, as mid and premium segments of the franchise fared relatively better. Marico also expects its digital-first brand to achieve double-digit earnings before interest, tax, depreciation, and amortisation margin by FY27.
The company said that while it was confident about its growth prospects in Bangladesh in the medium term, as a long-term strategy, Marico has consistently reduced its dependence on Bangladesh and aimed at diversification in other markets. The company said that it wanted its non-Bangladesh business to grow by 20-25% over the next three years.
After market hours on Tuesday, Marico reported a consolidated net profit of INR 4.23 billion for the September quarter, up 19.8% from INR 3.53 billion a year ago, and higher than INR 3.83 billion estimated by analysts. The company reported a consolidated revenue of INR 26.64 billion for the quarter, up 7.6% from INR 24.76 billion a year ago. The Street had estimated the company would post consolidated revenues of INR 26.75 billion for the quarter. On Tuesday, shares of the company closed at INR 629.15 on the National Stock Exchnage, down 0.8%. End
Edited by Akul Nishant Akhoury
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