Marico hopes for 8-10% volume growth

After witnessing a disappointing first quarter due to GST and destocking by the trade, FMCG major Marico is hoping to get back to 8-10 per cent volume growth but warned of a ‘black swan’ impact as well.

Making structural changes in its distribution channel, the maker of Parachute and Saffola, is planning to make up for the shrinkage in its distribution pipeline post GST.

Saugata Gupta, MD &CEO, Marico, during the Q1 earnings call, said: “We underestimated the transition to GST and like demonetisation, the north and the east markets got more impacted. But now, we are going to make structural changes in our distribution channel and are expecting 8-10 per cent volume growth in the coming year.’’

During the first quarter, Marico’s India business suffered a volume decline of 9 per cent with net profit down at 12 per cent as a result of the transition to GST which involved distribution pipeline correction across channels like wholesale and CSD (canteen stores department). “It is our endeavour now to increase direct reach for channels across the urban markets in the six metros. In fact, there is going to be enough opportunity to expand in both urban and rural markets in places like UP where we are not that strong,’’ said Gupta.

Making structural changes in the pipeline could also involve moving away from the traditional wholesale channel to new forms of distribution like B2B and cash & carry. Marico will ideally like to reduce dependence on the wholesale channels.

“Since the cost of doing business across channels will move up, in the long term, there could be direct distribution which would replace the traditional wholesale channels with B2B and cash & carry,’’ he added.

Price reduction Passing on the impact of GST to consumers, Marico has already taken price reduction across its VAHO (value added hair oil) and Saffola franchise.

“We have taken price drops of 5 per cent for VAHO and about 3-4 per cent for Saffola post GST since we passed on the input tax benefits to consumers,’’ said Gupta.

This should help volumes pick up since its VAHO portfolio had declined by 8 per cent, while Saffola edible oils portfolio also declined by 9 per cent in Q1 due to GST.

However, Marico is not making any immediate pricing changes for its flagship brand ‘Parachute’ despite its volumes plunging to 9 per cent.

“We are not taking any pricing action on Parachute. Copra prices are at their peak but we are waiting for the GST situation to stabilise,’’ he said.

In fact, during the quarter, despite volumes dipping for Parachute, its sales growth value was positive at 3 per cent.

Despite headwinds, the coconut oil portfolio saw market share gains, a reversal after four quarters of decline.

Going forward, Marico expects its flagship brands of Parachute and Saffola to stabilise in terms of volumes than due to pricing action. However, its VAHO portfolio will be dependent on demand from the east, north and rural markets.

Marico has clarified that the actual statement made during the course of an analysts’ call was:“To conclude, I firmly believe that it will be largely business as usual for most of the balance year unless there is some black swan, and there will be some transition hiccups that will continue” and hence the statement is misleading. It has further clarified that the statement in the article that "Marico has taken price drops of 5 per cent for VAHO and about 3-4 per cent for Saffola post GST since we passed on the input tax benefits to consumers’’ was an incorrect interpretation and what was stated was: “We have taken price drops of 5 per cent for VAHO and about 3-4 per cent for Saffola post GST, since we passed on the input tax benefits to consumers.” Therefore the input tax benefit reference was only with regards to Saffola and not for VAHO.

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