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Home-grown FMCG major Marico Ltd expects to grow volumes by 6-8 per cent and operating margins to over 19 per cent this fiscal (FY20).
According to Vivek Karve, Chief Financial Officer, the medium-term volume growth is expected to be between 8 and 10 per cent in the domestic market, while the growth may be a tad lower at 6-8 per cent this fiscal.
“Premium offerings, that Marico is investing to grow, will definitely have a blended gross margin profile that is better than our core. However, they (premium offerings) are yet to achieve a significant critical mass. Higher brand building investments have to be made,” he told BusinessLine during an interview.
Premium segment
“The higher gross margins will translate to higher net margins over a five-seven year period,” Karve added. The Mumbai-based company has been focussing on premium offerings for over a year, and its domestic growth volumes continue to come primarily from core offerings such as Parachute, value-added hair oils (VAHO) and the male grooming portfolio.
A report by Edelweiss Securities points out that Parachute posted a strong volume growth of 9 per cent, year-on-year, in Q1 FY19 (April to June). Selective price cuts and promotions helped the company.
On the other hand, Saffola edible oils continued to remain “a challenge”. “VAHO under-performed slightly but recovery is expected,” the report maintained.
In the June quarter, Marico saw a 7 per cent rise in net sales YoY to ₹2,166 crore; while Ebitda (Earnings before interest, tax, depreciation and amortisation), stood at ₹461 crore — a 26-per cent jump.
Read | Marico Q1 net profit rises 21.62 per cent to Rs 315 crore
Margin improvement in April to June period came primarily on the back of deflated raw material prices such as copra, rice bran oil, liquid paraffin, etc.
Increased ad spends
Premium offerings account for five per cent of Marico’s turnover and over the next five years, this share is may rise to 10 per cent.
As they eventually turn profitable, they will uplift the overall operating margins.
According to him, the company is upping its advertisement spends in order to push the premium portfolio covering categories such as foods, male grooming, value-added hair oils and so on.
Ad spends in Q1FY20 stood at 10 per cent of sales, up by 32 per cent year-on-year.
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