Analyst Corner: Marco volume rises 15% in Q3, focus stays on growth

Marico’s India volume growth of 15% was the key highlight in its Q3FY21 results, which has also been broad-based with a strong recovery and share gains in VAHO portfolio. Despite margin contraction, due to input price inflation, Analyst Corner was at double digits led by product price hikes. Marico has further taken up prices (in Parachute) which should help, although the management expects a correction in copra prices in the near-future; focus, however, remains on growth.

The company had a good performance in the third quarter. Marico’s Q3 Ebitda grew 11% year-on-year (Y-o-Y) to Rs 410 crore, marginally above estimates. The revenue growth was better-than-expected at 16%, which was offset by a miss on margin (down 100bps Y-o-Y). A lower tax rate led to a better 13% EPS growth.

Strong India: India volume growth stood at 15% (Y-o-Y), a multi-year high. The value growth was even better at 18% (Y-o-Y), led by product price hikes in the Saffola portfolio.

Margin pressure: Prices of key inputs inched up further with copra up 16% (Q-o-Q) and rice bran oil up 7% (Q-o-Q). Other inputs such as LLP and HDPE also saw sharp price inflation. In a bid to offset the impact, Marico reduced consumer promotions in Parachute and raised Saffola prices by 15% over multiple rounds. GM still declined 220bps (Y-o-Y) which was partly offset by lower ad-spends (-1ppt Y-o-Y) and cost controls. Resultant Ebitda margin contraction was restricted to 100bps YoY.

RM outlook: Marico is witnessing early signs of copra prices cooling off and some respite is likely as peak season sets in. The company expects prices to remain flat on an annualised basis in FY22. Even in the case of rice bran oil, inflation is expected to be transient and moderate over the next few months.

India portfolio in Q3: Parachute grew 9% YoY with volume up 8%; VAHO grew 21%, after five quarters of decline. Volumes were up 21%, albeit on a soft base of 7% decline. Saffola continued its strong growth trajectory with 17% volume growth and 26% value growth. Foods portfolio grew 74% with Masala Oats up 50%.

Saffola Honey ramped up further, exiting with a double-digit market share in MT and 20% + market share in e-commerce. Premium personal care portfolio saw a 4% YoY volume decline, although demand revived sequentially.