Marico to fall short of 2020 revenue target
Slow volume growth, costlier raw materials and GST rollout roadblocks in Marico’s path to achieving Rs10,000 crore revenue by 2020, says CEO Saugata Gupta
Bengaluru: Marico Ltd will miss its target of achieving Rs10,000 crore in sales by 2020 due to slow volume growth, costlier raw materials and the roll-out of the goods and services tax (GST), a top official at the fast-moving consumer goods (FMCG) company said.
The maker of Parachute coconut hair oil, which had set that target in 2016, will take another one to two years to reach that figure, managing director and chief executive Saugata Gupta said. In 2016-17, the company had clocked sales of Rs5,935.92 crore.
“We had one-and-a-half years of deflation and low volume growth, especially with GST and other things. I think we will fall short (of our revenue target) by one or two years,” Gupta said in an interview.
However, the company is hoping to grow volumes by 8-10% in India and increase revenue contribution from rural areas, while pursuing new avenues of growth.
During the heydays of FMCG, the industry used to enjoy strong volume growth but that has slowed down over the last three years. Meanwhile, inflation has risen to touch 5.07% in January, and is expected to rise further, according to a 26 February PTI report, citing a UBS report.
Higher inflation typically impacts overall consumer spending, but Gupta is optimistic about the future.
“If there is no other disruption, and some of the stuff which has been announced in the budget is executed well, then next year should be a better year (for FMCG). For us also, we are seeing early signs of our new products and innovations doing better, but we have to up that trend,” Gupta said.
This, despite the fact that Marico will have to deal with some short-term margin pressures due to costlier copra and light liquid paraffin, both key materials used to make hair oil.
Gupta is confident the firm can tide over high copra prices over the next 3-4 quarters. Marico has already hiked prices of Parachute coconut oil by roughly 22% on a weighted average basis so far in FY18 to protect margins. It also plans to increase revenue contribution from rural India, around 31% in FY17, to about 40% over the next 4-5 years. It has had slightly lower rural contribution compared with its peers, he said, because it does not sell its products in Re1 sachets.
Sachets remain the preferred route for FMCG companies to achieve higher rural penetration. But Marico does not want to take that route, considering volatile raw material costs.
Over the next year, the firm also plans to expand its product range in categories like premium foods, neutraceuticals (health products) and male grooming. It expects these categories—especially health and male grooming—to become big drivers of growth over the longer term.
It plans to build up a portfolio of digital-only brands in these categories to raise revenue contribution from its e-commerce channel to 2% in FY19 from the current 1%.
It is also test-marketing a high-fibre soup under the Saffola brand in Mumbai and has installed vending machines at several offices to drive up trials of its Saffola oats range.
“I think the issue the company is facing is in Saffola premium edible oil. If you see the last three quarters, they have had muted growth and flattish volumes even in this quarter,” said Abneesh Roy, senior vice-president at Edelweiss Securities, adding that Parachute, however, is going strong.
Saffola is probably suffering because of competitive pressures, Roy said. Rival Emami Ltd, for instance, sells rice bran oil at an aggressive price of around Rs85 for 3 litres, which competes for the same health-conscious customer as Saffola’s premium edible oils, he added.
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