At a time when investors are edgy about fast-moving consumer goods’ (FMCG) outlook given the consumption slowdown, Marico Ltd’s June quarter results are comforting.

The company, popular for its Parachute coconut hair oil brand, has clocked 6% domestic volume growth in the last quarter. Considering that volume growth in the base June 2018 quarter was relatively high at 12%, the current year’s performance doesn’t look that bad.

Marico’s volume performance in the June quarter was helped by good growth in Parachute rigid packs (blue bottles), which saw volume market share gain. That’s nothing to sneeze at especially when copra, a key raw material, is in a downcycle. On the other hand, Saffola edible oil’s performance continues to be an area of pain.

Meanwhile, copra prices fell sharply by 25% year-on-year during the June quarter. This has helped the company benefit on the profit margin front. On a consolidated basis, Marico’s Ebitda (earnings before interest, taxes, depreciation and amortization) margin for the June quarter expanded 323 basis points year-on-year to 21.3%. This is despite a sharp increase in advertisement and sales promotion expenses.

“The company has not passed on lower copra prices through price cuts in this downcycle given much stronger brand franchise and relative competitive position versus local and regional brands in wake of liquidity crunch and wholesale channel disruption since GST," said Varun Lohchab of Jefferies India Pvt. Ltd in a report on 2 August.

Marico has told analysts that there might be an increase in copra prices in the second half of the fiscal year. As such, analysts don’t seem perturbed as of now and, in general, margins are broadly expected to improve in FY20. “We model Ebitda margin expansion in financial year 2020 (+160 basis point year-on-year) driven by benign input cost environment (management guidance of 15-20% correction in copra prices in FY2020)," said ICICI Securities Ltd.

At a time when demand woes are clouding sentiments for FMCG stocks, Marico appears to be enjoying a cushy spot. Currently, the stock trades at about 43 times FY20 estimated earnings, not as expensive as some of its peers.

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