Barring the past two trading sessions, in which Hindustan Unilever Ltd’s shares skewed the performance of the S&P BSE FMCG index, Marico Ltd stock has more or less moved in tandem with the benchmark index. Marico’s March quarter results, announced after market hours on Tuesday, could lead to underperformance.
Both revenue and profit were below Street expectations.
Consolidated revenue grew by only 9% year-on-year despite the benefit of
an acquisition. Sales of the mainstay, Parachute
coconut oil, rose by just 2% year-on-year as volume growth slipped to
5% and because of price corrections. “There has been some deceleration
in the growth during the past few months,” the company said in an
investor update. “The rate of new customer acquisition was slower owing
to an expansion in the premium charged by the company on its products
and a slowdown in certain discretionary segments.”
The company reduced prices in the middle of the March
quarter, but the full impact of this will be visible in the June
quarter. While this is expected to result in an improvement in volume
growth, margins can come under some pressure. The company has said that
the operating margin of the India personal and home care products
business has been in the 19-20% range and now believes that the margins
in the 17-18% range are sustainable in the medium term.
Volume growth of the Saffola brand has suffered through the year and fell further in the March quarter.
Here, the main reason has been that inflation in prices
of safflower oil and rice bran oil has been significantly higher than
that in sunflower oil, leading to an expansion in the premium of Saffola
compared with the other refined edible oils. Again, the company has
corrected prices by 2-3%, which may help volumes pick up from current
levels. However, it must be noted here that since discretionary spending
has been under pressure, sales of this brand may continue to register
muted growth.
Analysts at Emkay Global Financial Services Ltd
point out that the company’s international businesses have been under
pressure owing to the unstable political and economic environment in
some of the countries the company operates in. The company’s
subsidiaries together reported a net loss of Rs.13.5
crore last quarter, according to the brokerage. Emkay adds that the
results were below expectations on all counts. Needless to say, the
Marico stock may correct when trading resumes on Thursday. However,
given the fact that the company has demonstrated resilience in the past
and has come out of similar situations, the correction may not be
severe.
AMIT KUMAR SINGH
PGDM - 2ND SEM
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