Marico falls 4% in two days on concerns over volume growth in Q3

In Q3FY20 update, Marico said the India business as a whole posted a marginal decline in volume growth, due to a decline in coconut oil, hair oils and other portfolios.

Shares of Marico were down 2 per cent at Rs 331 on the BSE on Friday. The stock has fallen 4 per cent in the past two days, on concerns over weak volume growth in the October-December quarter (Q3FY20). The personal products company's stock was trading close to its 52-week low price of Rs 325, touched on February 18, 2019.

“The India business as a whole posted a marginal decline in volume growth, due to a decline in coconut oil, hair oils and other portfolios. However, the saffola oils and foods portfolio delivered healthy double-digit volume growth,” Marico said in Q3FY20 quarterly update.

Overall consumption trend during the quarter belied expectations of the beginning of a revival in sentiment which were built on the back of good monsoons and announcement of various government measures. Category growths across personal care remained under pressure, while foods and allied categories fared relatively better, it said.

However, the company continued to consolidate market shares across key franchises. The traditional channel stayed weak, as channel partners continued to face liquidity challenges amidst a soft demand environment. Growth in modern trade and E-Commerce also slowed down, partly due to specific price management measures taken in these channels to counter inter-channel conflict, the company said.

The management expects improvement in EBITDA (earnings before interest, tax, depreciation and amortisation) margin year-on-year given benign input costs, which should translate to reasonable growth in net profit.

It expects some green shoots of recovery in Q4, on the back of focused marketing initiatives and pricing interventions taken in key portfolios, which have hit the shelves in the late stages of Q3 post the clearing of older inventory in the channel.

“As there has been sharp sequential deterioration in demand in 2Q/3QFY20, volume visibility is also not superior to peers and the best of copra cost reduction is behind,” analysts at Motilal Oswal said in company update with ‘neutral’ rating on the stock.

The brokerage firm said that three factors that underpinned its investment case on Marico were: better volume visibility compared to peers, a strong pipeline of new products -- which could potentially alter pace of medium-term growth -- and a decline in copra cost leading to a sharp pick-up in earnings.