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As on 28-Jan-2022  18:00

Marico Q3 PAT rises 2% YoY to Rs 317 cr

Consolidated EBITDA rose 4% to Rs 431 crore in Q3 FY22 over Q3 FY21. EBITDA margin slipped 155 bps to 17.9%. The domestic business delivered a turnover of Rs 1,817 crore in Q3 FY22, rising 12% on a Y-o-Y (year-on-year) basis. The operating margin stood at 18.3% in Q3 FY22. The international business, on the other hand, recorded a turnover of Rs 590 crore, jumping 19% on a Y-o-Y basis. The operating margin in the international business was at 24.1% in Q3 FY22. The international constant currency growth stood at 18%.

In India, inflation across the consumer basket led to moderation in consumption patterns and the share of wallet of staples, while discretionary and out-of-home categories fared better owing to some degree of pent-up demand. As a result, overall FMCG market volumes witnessed a drop in Q3 FY22, with rural visibly lagging urban. Amidst the challenging operating environment, the company's domestic business put up a good performance with 12% revenue growth, while volumes remained flat Y-o-Y on a base of 15%.

Volume growth on a 2-year CAGR basis stood at 7.3%, much ahead of low single digit growth for the FMCG market, backed by proper execution and investment in brand building. This also reflected in 94% of the portfolio logging market share gains and 95% of the portfolio gaining penetration on a MAT basis. Within traditional trade, performance in rural lagged urban during the quarter, in keeping with market trends. Alternate channels and CSD stayed on the growth path.

The International business delivered 18% constant currency growth with each of the Bangladesh, South East Asia and MENA businesses clocking high double-digit growth. Gross margin improved sequentially by 125 bps, but was down 329 bps Y-o-Y. With copra prices (a key constituent for Marico as it accounts for majority of its raw material requirements) moderating further since late December 2021 and edible oil prices off its highs, gross margins is expected to maintain an upward trajectory sequentially. A&P spends was up 14%, as the company chose to continue to invest in brand building despite significant inflationary pressures and compression on profitability. The EBITDA margin stood at 17.9%, falling 155 bps Y-o-Y, EBITDA was up 4% Y-o-Y and PAT rose 1% Y-o-Y.

Among input costs, Copra price, was down 1% sequentially and 19% Y-o-Y. With the supply outlook improving and the third COVID-19 wave affecting coconut demand, copra prices should remain soft in the near term, as per the company's press release. Rice Bran oil was up 29% Y-o-Y, but down 13% sequentially.

Marico expect some correction in the coming quarters, in line with international vegetable oil prices, and forecast of a recovery in the global oil seed production. Crude derivatives such as Liquid Paraffin (LLP) and HDPE were up 17% and 24% Y-o-Y, respectively. These are likely to remain range-bound in the near term, with a downward bias owing to improved supplies and slower global demand recovery in crude.

On a segmental basis, Parachute Rigids grew 1% in volumes, despite moderating consumption trends. Keeping consumers at the helm and given the softer copra price outlook, the brand has proactively passed on value to the consumer, which is likely to provide a fillip to volume growth in the coming quarter. The brand reaffirmed its stronghold in the branded coconut oil market with the rigid packs gaining volume market share of 220 bps (as per MAT December 2021). As consumer sentiment normalizes, the brand is well poised to grow in line with its medium term aspiration through focused distribution drives and driving penetration in both core & non-core markets.

The second segment, Saffola Franchise, comprising Refined Edible Oils and Foods, grew 19% in value terms. Saffola refined edible oils declined in volume terms, largely owing to higher in-home consumption in the base and weak trade sentiment due to fluctuating input prices. The brand continued media investments on the thematic campaign which aims to accelerate penetration by building the relevance of heart care and highlighting that the daily stress one goes through impacts the heart.

The third segment, Value Added Hair Oils grew 3% in value terms. The franchise grew in double digits on a 2-year CAGR basis. During the quarter, the mid and premium segment brands outperformed the bottom of the pyramid segment, which was further accentuated by the slowdown in rural consumption. The company gained 80 bps in value market share during the quarter in the overall hair oils category.

For its medium-term outlook, Marico highlighted that, In India, consensus projections of the pace of economic recovery is encouraging. The industry also expects the upcoming Union Budget to introduce measures, which will boost disposable incomes of the consuming class in urban and rural and, in turn, reignite consumption sentiment in the economy. We are optimistic of a recovery in rural growth, given the normal monsoons, healthy sowing season and continued government stimulus. However, inflation levels will have to be closely watched. We expect an uptick in volumes in the near term, while we maintain sharp focus on driving penetration and market share gains across our portfolios, expanding distribution, aggressive cost controls, and investing in market development and brand building.

The International business has got into a rhythm of robust growth with healthy profitability. Despite newer variants of the COVID-19 virus emerging and caseloads across regions rising once again, the impact appears to have been contained by the expanding vaccination coverage. While we will continue to closely monitor the evolving situation, based on status quo, we are confident of delivering double-digit constant currency growth in the international business in the near term. Owing to the softer outlook on commodity prices, we expect gross margin to continue improving sequentially in the near term.

Over the medium term, we hold our aspiration to deliver 13-15% revenue growth on the back of 8-10% domestic volume growth in the domestic business and double-digit constant currency growth in the international business. We will aim to maintain consolidated operating margin above the threshold of 19% over the medium term.

Meanwhile, the board has declared a second interim equity dividend for the FY2021 of Rs 6.25 per equity share of Re 1 each.

Shares of Marico rose 1.75% to close at Rs 471 on BSE. Marico is a leading Indian group in consumer products in the global beauty and wellness space.

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