Shares of Marico slipped 7 per cent to Rs 503.1 per share in Monday’s intra-day trade, on the back of heavy volumes, after the company reported 3 per cent year-on-year (YoY) drop in the September quarter (Q2FY23) profit to Rs 307 crore. The personal products maker said that the decline in profit was mainly due to losses in translation of foreign currency receivables and higher effective tax rate (ETR).
In Q2FY23, the company saw revenue from operations grow 3 per cent YoY to Rs 2,496 crore, with underlying 3 per cent volume growth in the domestic business and 11 per cent constant currency growth in the international business.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, meanwhile, contracted 17 basis points (bps) YoY at 17.3 per cent. Gross margin, however, expanded 115 bps YoY, but was lower sequentially, due to consumption of higher inventory cost of raw materials and adverse impact of depreciating currencies in select international markets.
“As retail inflation held firm in India, the FMCG sector witnessed a volume decline for the fourth quarter in a row, with growth led by pricing. Demand sentiment was largely on similar lines as the preceding quarter and improved slightly only in the last month of the quarter owing to the upcoming festive season,” the company said.
After a tepid Q1, the company said that it recovered to post reasonable growth in domestic volumes, on the back of healthier traction among urban and premium discretionary portfolios.
In the domestic market, Marico expects to deliver mid-single digit volume growth in H2FY23 (October-March). While there are risks of currency depreciation and inflation in some markets, the management is confident of maintaining a double-digit growth momentum in the coming quarters in the international businesses.
“The company’s gross margin should improve sequentially from Q3 as copra remains in the soft zone, while the recent volatility in vegetable oils keeps us watchful. Taking into account the quarterly gyrations of all cost line items, we maintain our aspiration to deliver 18-19 per cent EBITDA margin in FY23,” Marico said.
According to analysts at ICICI Securities, Marico witnessed sluggish growth in its hair oil product portfolio given hair oil category is highly penetrated. Moreover, high inflation in edible oil resulted in volume contraction in the last few quarters. The only growing part of product portfolio is foods & digital first brands.
The brokerage firm believes that these segments would continue to grow at a faster pace given the company is leveraging Saffola’s brand equity & Beardo’s e-Commerce channel strength to its advantage. However, their contribution to sales is very small (less than 10 per cent).
“We believe sharp decline in edible oil inflation would result in improvement in gross margins in coming quarters. However, we remain cautious on hair oil (Parachute, VAHO) sales growth prospects on a longer term basis,” the brokerage firm said.
