Price drops hurt Marico in Q1 as revenue declines 3% despite volume growth; recovery likely by H2

• Marico’s revenues fell 3% in Q1 due to pricing drops; management sees it moving to positive territory only in the second half of FY24.
• Its domestic volumes for the quarter grew at a moderate 3%, and volumes in its flagship brand Parachute fell slightly.
• Higher pricing still weighs on rural demand, the company said in its outlook.
  

FMCG major Marico reported a 15% growth in Q1 net profit to ₹436 crore as compared to ₹377 crore in the same quarter last year. However, its revenue from operations fell by 3% in the same period to ₹2,477 crore from ₹2,558 crore.

“Pricing drops in key domestic portfolios and currency headwinds in international markets subdue revenue growth,” said the company which has operations in Bangladesh, Vietnam, South Africa and MENA regions.

Marico also said that pricing growth is tapering sequentially. “Pricing declines to taper off from Q2 onwards and revenue growth to move into positive territory in the second half of the year,” it said.

Its profits however were supported by raw material costs which fell 16% on a year on year basis. The EBITDA margin expanded by 253 basis points to 23.2% during the quarter, the company said. EBITDA is earnings before interest tax depreciation and amortization.

“With incremental gross margin tailwinds in Q1, we expect the highest ever operating margin of over 20% in FY24,” Marico said.

‘Growth to be volume-led’

Its domestic volumes for the quarter grew at a moderate 3%.

“The company saw a 3% volume growth which was impacted by one-off channel inventory adjustments in edible oils and trade scheme rationalization in core categories. Urban markets continue to lead growth while rural markets consolidated on a low base,” said Prabhudas Liladher in its first cut on the earnings.

Volumes in its flagship brand Parachute, which contributes to 34% of its domestic revenues, fell by 2%. Saffola brand of products grew in lower double digits, the company said, without giving specific numbers.

Marico says that growth is to be volume-led going ahead, but does not sound confident about rural market recovery.

“Higher pricing still weighs on rural demand. Erratic weather patterns, early onset of El-Nino and spatial distribution of rainfall could influence recovery in overall sentiment,” it said in an investor update.