Home-grown FMCG major Marico Ltd is looking to add more premium offerings to its portfolio, over the next half decade or so. The move is also aimed at bettering overall margins.

According to Vivek Karve, CFO, Marico Ltd, personal care and health foods are two particular areas where the company is actively exploring premium offerings. In personal care, most offerings in male grooming category are already premium, but in the hair care segment that premiumisation will happen.

Currently, approximately seven per cent of Marico’s India business is contributed by the premium leave-in hair nourishment portfolio. Over the next three to four years, that is likely to move up to over 10 per cent.

For instance, the company recently introduced products like the ‘Parachute Advansed Coconut Crème Oil Range’ while ‘Set Wet Studio X’ is another premium brand launched in the male grooming category.

Karve maintains such premiumisation is being done through “sensorially better” and “functional expertise” of the products. All possible distribution channels such as modern trade and e-commerce will be leveraged.

“It is a long-term game plan. A lot of new product developments that we will do are going to be in the premium segment,” he told BusinessLine, adding that “in the medium-term, around 2022, we will look to take the share of new launches to 6-7 per cent of the total business of Marico.”

According to Abneesh Roy, Senior Vice-President, Institutional Equities, Edelweiss Securities Ltd, for Marico a move into niche categories make sense. Larger FMCG players like an HUL dominate most categories. “And, Marico has to take them on either on price, or in the premium segment where entry barriers are less. So a focus on premium makes sense,” he said, adding that then there is the issue of margins.

Eyeing better margins

Higher end offerings obviously command better margins. For instance, the Saffola Masala Oats makes better margins than the oil.

Between FY-17 and FY-18, Marico saw operating profit margin (OPM) and net profit margins (NPM) decline. From 24.77 per cent in FY17, OPM stood at 19.70 per cent in FY18. While NPM stood at 13.86 per cent last fiscal (from 17.31 per cent in FY17).

Margins came under pressure primarily due to increase in copra price that led to a hike in Parachute Rigid (bottled offerings) prices. This increase saw margins in Q1 (April to June) improve over both January-March 2018 and October-December 2017 quarters.

Roy maintains that margin expansion should start getting reflected H2FY-19, “unless there is a black swan event on crude”. If input prices do not decline, then Marico may “decide on the pricing aspect”, he added.

According to Marico’s Karve, the company’s guidance (on margins) is around 17-18 per cent. “We will be very happy if we are able to move up the margins,” he added.

Related Topics