From net sales to profit, how Marico bucked the slowdown trend in Q4

Greater thrust on urban premiumisation, higher sales from online and modern trade and lower rural exposure helped insulate the company

Consumer goods major Marico reported its highest domestic volumes growth in three quarters as the Mumbai-based firm emerged an outlier in a market reeling from a slowdown. For the three months ended March 2019 (Q4), Marico's net sales, operating profit and net profit (excluding tax writebacks) grew 9 per cent, 12 per cent and 18 per cent, respectively, from a year earlier, surprising analysts, even as overall volume growth came in at 8 per cent. Domestic volume growth, too, came in at 8 per cent over the year-ago period while international business reported 14 per cent growth. 

At a time when the environment appears gloomy and most chief executive officers of fast-moving consumer goods (FMCG) companies are counting on a post-election stimulus to revive demand in the sector, Saugata Gupta, managing director (MD) and chief executive officer (CEO), Marico, said a greater thrust on urban premiumisation, higher sales from online and modern trade and lower exposure to rural areas helped the company post good numbers in Q4.

In a call with analysts on Monday, Gupta said, "There is a significant amount of investment we are making in premiumisation. We have also managed to turnaround Saffola in edible oils, which has helped growth in Q4. Our rural dependence is slightly lower than our peer companies at 35 per cent (of sales) and a significant portion of our incremental growth has come from foods, premium hair nourishment and male grooming."

Analysts, though, also point to a low base effect in Q4, which contributed to overall and domestic volume growth. "In the year-ago period (Q4FY18), Marico reported 1 per cent domestic volume growth. So, domestic volume growth (in the quarter under review) looks better because of the low base effect," Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss, said.

Even then, said experts, Marico had been focusing on five levers of growth, including premiumisation of hair nourishment, greater focus on the bottom-of-pyramid market with product launches and marketing initiatives, male grooming, foods and skincare. This has resulted, they said, in Marico increasing new brand launches over the past one year as opposed to mainly variant launches of existing brands, which was the strategy earlier. The company has also pushed direct distribution into rural areas aggressively and is focusing on channels such as e-commerce and modern trade to drive sales.

Now, Marico derives around 78 per cent of its top line from India and 22 per cent from international operations. Of the India business, 44-45 per cent, say analysts, is contributed by coconut oil brands Parachute, Nihar Naturals and Oil of Malabar. The edible oil and food brand Saffola contributes around 20 per cent to domestic turnover while leave-in or premium hair nourishment, led by value-added hair oils and hair serums (such as Livon) contribute 25-27 per cent to top line and male grooming, led by brand Set Wet, contributes 3-4 per cent to sales. 

According to analysts, in Q4 Parachute coconut oil in rigid packs saw 6 per cent volume growth, Saffola saw an 18 per cent volume growth and leave-in or premium hair nourishment, led by Livon hair serums, saw 38 per cent value growth. On the downside, value-added hair oils and male grooming saw 1 per cent volume growth and 3 per cent value growth, respectively.