Marico Limited has announced the results for the second quarter ending September 30, 2017. The India business achieved a turnover of INR 1,200 crore (USD 187 million), a growth of 12 per cent over the same period last year. The volume growth in India was healthy at 8 per cent for the quarter.
This is attributable to competitive pricing, restocking in trade subsequent to the pipeline reduction prior to implementation of GST, and strategic investments made by the company. While the pace of recovery in eastern markets, especially in rural and the wholesale channel, and CSD has been slow, the northern, western and southern markets and Modern Trade have restored to normalcy.
Marico’s rural sales grew by 14 per cent while urban sales grew by 10 per cent in value terms. Sales in Modern Trade (10 per cent of the India turnover) continued to grow rapidly, by 27 per cent in Q2FY18, as the new habit of convenience shopping in the modern trade environment is taking roots post demonetization. CSD (7 per cent of the India turnover) declined by 1 per cent in Q2FY18. Recovery in the CSD channel is expected to happen from Q4 FY18.
The operating margin during Q2FY18 was 19.3 per cent (before corporate allocations) as against 21.0 per cent for the same period last year. The margins decreased this quarter due to a steep rise in input costs while the company chose to hold back the price increase in Parachute Rigids portfolio. The company said that it would continue to focus on a balanced approach towards volume growth and profitable margins. “In the medium term, we would be comfortable at ~ plus 20 per cent EBITDA margins.”
Including overseas business, the revenue from operations stood at INR 1,536 crore (USD 239 million), a growth of 6 per cent over Q2FY17. Operating margin at 16.9 per cent was impacted by a steep inflation in copra prices (~84 per cent YoY) while the Company held back price increases in the Parachute Rigids portfolio.
To support buoyancy in volumes, the company stepped up advertising & sales promotion spends to 10.4 per cent as compared to the past few quarters, moving closer to the medium term guidance levels of 11-12 per cent. The company had spent 12.8 per cent of its turnover in the corresponding quarter of last year while it was 9.5 per cent in the first quarter of FY18.
The company will aim at a volume growth of 8-10 per cent and a topline growth of ~13-15 per cent (depending on inflation) in the medium term. It expects to maintain the operating margin in a band of 17-18 per cent over the medium term.
Commenting on the performance, Saugata Gupta, MD & CEO, said, “In Q2FY18, healthy volume growth was restored along with market share gains in more than 90 per cent of the portfolio as the trade stabilized post GST implementation. Although earnings growth was muted, margins were resilient despite the hyper- inflationary input cost environment. We also continued our thrust on innovations during the quarter. We expect the second half to be better with 8-10 per cent volume growth in India and double digit constant currency growth in International. We continue to remain confident of delivering sustainable profitable growth over the medium to long term as we invest behind brand and new age capabilities.”