Marico looks to retain margins; sales back at 90% of FY20 monthly average

Abhishek Law Kolkata | Updated on July 01, 2020 Published on July 01, 2020

Vivek Karve, CFO, Marico

Home-grown FMCG major Marico Ltd is looking to maintain operating margins at FY20 level, even as it sees sales come back at “90 per cent of last year’s average monthly levels”.

While premiumisation drives across categories such as male grooming will take a back seat, at least for this fiscal, the company plans to “prioritise” on food and hygiene segments through Saffola and other brands, including new ones.

According to Vivek Karve, CFO, Marico Ltd, operating margins in FY20 stood at 20.1 per cent. Gross margins may see some shrinkage. However, strict control over spends in advertising and sales promotion and a similar control of overhead costs will ensure that operating margins are protected.

“We have said that the focus this year will be to protect margins and maintain them at FY20 levels,” he told BusinessLine.

Edelweiss Securities in a report has maintained that “but for Covid, Marico would have delivered low-to-mid single-digit volume growth for Q4 FY20. Company would aim to maintain 20 per cent-plus EBITDA margin in India business.”

Raw material prices, particularly copra, were flat y-o-y in Q4 FY20, while that of liquid paraffin and HDPE were down. Rice bran oil was up. Raw material price is expected to remain benign, except for edible oils.

“Demand of coconut has come down and hence copra prices remain benign. Going ahead will aggressively price Parachute,” Edelweiss further said.

According to Karve, sales are already at 90 per cent of “average monthly levels of FY20” (total sales divided by 12), which was “encouraging”.

Saffola Edible Oils and foods have been growing year-on-year over last year while Parachute, amongst Marico’s major brands, has managed to maintain average sales of FY20 for the first two months.

Premium hair nourishment and male grooming volumes declined by 19 per cent and 9 per cent, respectively, in Q4 FY20. These continue to be weak with lower discretionary spends being expected.

Product ramp-up

Incidentally, in the January-March period, Saffola edible oils saw a 25 per cent growth in volume y-o-y led by “pantry stocking” preceding the lockdown towards the end of the quarter and increased in-home consumption. However, Marico has for the last one year been working on improving market share; and growth trends were visible Q3 onwards.

Calling the trends in Saffola “green shoots”, Karve said pantry stocking is not an option now. The company will look to boost presence across retail outlets as it anticipates increase in demand. Moreover, customer retention schemes like focussing on one-litre packs are being worked on, apart from regular trade promotions.

Foods category

In the foods category, the company will be making “innovative launches” over the next three-six months, skewed towards mass category; but with “better margins”. Foods, which is now a nearly ₹200-crore vertical for Marico, saw a 31 per cent growth in value terms in FY20.

Similarly, health and hygiene, a segment that the company entered into with the launch of hand sanitisers and vegetable washes, will be ramped-up. “Our entry into the health and hygiene segment has been strategically planned. Since there are too many players, we are looking at differentiated offerings,” Karve added.

Published on July 01, 2020
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