Marico Ltd reported excellent volume growth across product categories in the December quarter, and price hikes allowed the company to post an improvement in gross margins. But sales growth was backed by a significant advertising and promotional push, which, along with sharply higher wages, affected profit margins.

Marico Ltd. health and beauty products are displayed on the shelf of a department store in Mumbai. Bloomberg

The low base effect will diminish from the March quarter onwards. Inflation has affected the company’s performance in some overseas markets, while the volatile situation in parts of West Asia and North Africa continues to be a concern.

In the domestic business, Marico is confident that it will maintain healthy volume growth in the near to medium term, even if not at the same rates as seen in the December quarter.

Vegetable oil prices have been relatively stable from over a year ago. The company has said that copra prices have softened in the past few weeks. That has been seen in the past, too, only for a bounce-back later. But if prices continue to fall, Marico is likely to cut product prices to remain competitive against smaller firms.

While sales rose 29%, material costs increased 26.6%, even as advertising costs surged 48.6% and employee costs by 45.2%. As a result, operating profit margin fell by about 68 basis points, which should not be very worrying. One basis point is one-hundredth of a percentage point.

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