Marico Q2 profit up 2.5% in September quarter as copra prices surge
Mumbai: Marico Ltd, a maker of edible and hair grooming oils, on Monday posted a 2.48% increase in September quarter consolidated profit to Rs185.04 crore from a year earlier, as prices of its main raw material copra surged.
Marico’s consolidated revenue from operations rose 6.47% to Rs1,536.29 crore as the company’s India business volume rose 8% from a year earlier. Revenue from the India business, which forms 77% of Marico’s consolidated revenue, rose 12% year-on-year to Rs1,200 crore.
“We expect the second half to be better with 8-10% volume growth in India and double digit constant currency growth in International (business),” Saugata Gupta, managing director and CEO of Marico said in a press statement.
Marico’s flagship blue bottle ‘rigids portfolio’ of Parachute hair oil grew 12% year-on-year in volume as the company refrained from raising prices and reported from the low base of the 2016 September quarter.
However, margins took a hit as prices of copra, or dried coconut, rose 84% year-on-year. While profit after tax rose 2.5%, the company’s Ebitda margin, a measure of operational profitability, narrowed 68 basis points and gross margin contracted 5.55 percentage points year-on-year.
“Copra prices are expected to remain firm in the near term,” the company said in the statement.
Ebitda stands for earnings before interest, tax, depreciation and amortization. A basis point is one hundredth of a percentage point.
To counter rising copra prices, Marico said it has increased the price of Parachute hair oil by 10% in October 2017. This comes after the company cut prices across categories by 3-6% following the implementation of the Goods and Services Tax (GST) to pass on the benefits of a lower tax rate to consumers.
“The price hikes because of raw material price rise will not have a significant impact on volume going forward,” said Kaustubh Pawaskar, an analyst at brokerage Sharekhan Ltd. “Growth will pick up in the second half of FY17-18, especially because you have to consider the low base effect of Q3 (quarter ending December 2017 on account of demonetization last year).”
With recovering volume, Marico also increased its marketing spends, up to 10.4% of sales and closer to the company’s medium-term target of 11-12% of sales, it said.
While volume recovery indicates that trade and distribution networks are coming back in action after GST implementation, pockets of problems remain, particularly eastern Indian channels and the canteen stores department, the country’s largest organized retailer, that sells to personnel of the armed forces and police and their families.
“While the pace of recovery in eastern markets, especially in rural and the wholesale channel, and CSD has been slow, the northern, western and southern markets and Modern Trade have restored to normalcy,” Marico said in the statement. “Saffola Edibles Oils portfolio witnessed a soft quarter registering a volume growth of 3%. A decline in CSD sales impacted performance. Without CSD, the volume growth was 6%.”
Among Marico’s three future growth levers - male grooming declined 18% in value from a year earlier because of destocking in the run up to the GST implementation on 1 July, the company said. “This is attributable to the decline in the sales of low-unit packs of Set Wet Gels (priced at Rs 10) due to wholesale destocking and a comparatively higher trade pipeline. The reported top line declined by 27%, due to higher GST rates compared to erstwhile VAT rates,” Marico said.
Set Wet is Marico’s biggest male grooming brand, along with Beardo, which it acquired in March, Mint reported on 18 March. Marico is betting on male grooming, healthy foods (led by Saffola Oats) and super premium oils for growth in the next three years, Mint reported on 9 May.
Meanwhile, international business grew 1% in constant currency terms, led by double digit growth in Bangladesh - the largest international market - but volume declined 3% year on year. The international business suffered under currency devaluation in key markets, particularly Middle East and North Africa, Marico said in the statement.