Marico hopes margins will recover as copra prices fall

Homegrown FMCG major Marico Ltd is expecting margins to “normalise” in another two quarters as copra prices have begun correcting (down 15 per cent from its Q4 peak); while the input cost pressure in the edible oils portfolio is expected to be “transient” and “ease out in the coming months”.

In the January-March quarter, the company’s operating profit margin (Ebitda) fell sharply to 15.9 per cent, from around 19 per cent in the year-ago period.

However, for fiscal FY21, Ebitda margins (earnings before interest tax depreciation and amortization) stood at 19.8 per cent which was in line with the company’s guidance of 19-20 per cent.

Copra prices correction

According to Pawan Agrawal, CFO, Marico Limited, price corrections in copra are already being witnessed and are currently down by more than 15 per cent from its April peak. Going forward, more corrections are expected, thereby “leading to a sequential recovery” in both gross margins and Ebitda.

Copra is a key constituent for Marico as it accounts for 50-55 per cent of its raw material requirements.

In FY22, copra prices are expected to be flat to marginally higher on an annualized basis, owing to a definitive healthy crop outlook, according to market sources.

“We believe margins have bottomed out for us in Q4 as copra prices are correcting from their peak now. Margins should be at normal levels from Q2 or Q3 of this fiscal. Considering this, we should maintain the threshold operating margin of 19 per cent in FY22,” he told BusinessLine .

Although prices are expected to correct soon, the pressure on the edible oils front continues at present, especially in the soya and rice bran categories. Price rise at the retail end for edible oil consumers has been above 60 per cent on a yearly basis.

Marico plays in the super premium refined edible oils segment through ‘Saffola’. But price hikes have been about 50 per cent for Saffola, Edelweiss said in a recent report.

Agrawal explains that global demand-supply factors, impact on production due to unfavorable weather conditions in soybean and sunflower producing countries, Covid-induced labour shortages in key markets, and increased bio fuel requirements across global markets have persisted for “longer than expected” which has led to “above normal” price movements in the categories.

There was sharp inflation in rice bran oil with Q4FY21 prices up 39 per cent YoY.

Despite the price hikes and a strong base effect, Saffola edible oils posted a 17 per cent volume growth in the March quarter, banking on consistent brand building investments and increased household penetration.

“The prices of Saffola, despite the hikes, remain competitive. At the moment, we do not want to take any hikes at the cost of volume growth. The input cost rise is transient and can be absorbed for one or two quarters,” he said.

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