Marico reported a good quarter. Revenue grew 15 percent while domestic volume growth at 9.3 percent comes in-line with estimates. In an interview with, Saugata Gupta, MD & CEO of Marico spoke about the results and his outlook for the company.
Below is the verbatim transcript of the interview.
Nisha: Your value-added product was disappointing because of the canteen stores department (CSD) channel and has that recovered and what is the expected sustainable growth there?
A: If you look at the value added hair oils, we grew 8 percent in volume and if you take out the CSD component, it is double-digit growth. I think CSD – we believe that yes, there are certain issues with respect to CSD in terms of stocking and their changing of some of the policies but that anniversarisation of that will happen sometime in either next quarter or Q1 of next year. So once the anniversarisation happens, I think we will move back to a decent growth in CSD and it will be clearly offtake layered as opposed to in the past there was volatility because of stock corrections and other policy changes.
Nisha: We saw a sharp decline in the gross margins in this quarter due to 90 percent increase in the input costs for the company. You have also announced a price hike effective January. Does that cover the entire uptick in the copra?
A: I think the copra prices have peaked out and we have taken next price increase also, it is not commensurate with the kind of an input cost increase, which we have experienced.
Having said that, as an organisation we believe that we want to maximize volume growth and market share and I believe there is an opportunity there to provide the consumer with great value.
As you know the copra thing is cyclical, so sometime during the next financial year, it will start softening. So our objective is to ensure that we don’t take a pricing call, which compromises the value proposition to the consumer.
As long as we are okay to take a short kind of margin pain, which would be there in the short-term but in the long-term it will be all okay because as I said as long as we drive volume growth and market share and we have a very aggressive cost management programme to manage other costs, we should be able to continue to deliver margins in that threshold level of 17-18 percent.
Sonia: With this 11 percent hike, what is the cumulative price hike this fiscal so far?
A: We have taken a 20 percent total hike and you must realise that in the last previous two years, there was a price drop commensurate with the lower copra prices. So having said that, I think you have to look at the volume growth in relation to the competition. We absorb a lot of price increase – input cost increases when there is inflation. So in terms of relative competitive pricing, we should be better off. That should ensure that the volume continues to be decent track as far as Parachute is concerned in the medium-term.
Sonia: What is the expected volume growth then in Q4 and for FY19, can we expect double-digit?
A: I think 8-10 percent is very much possible.
Sonia: That is for Q4 or for FY19?
A: I am talking of the coming quarters. The visibility of the next few quarters.
Nisha: You have also reduced the ad spends this quarter. It is now sub about 10 percent as a percentage of sales, will that increase to normal 12 percent going forward?
A: Yes, you have to look at it on a like-to-like basis. This is a post goods and services tax (GST) treatment. So on a like-to-like basis, it is more than 10 percent. The significant drop in the ad-spends has been in more in international business, not in India. India – like-to-like - there has been a 14 percent increase in ad-spends in the quarter.
With the revised definition, post GST the ad-spends should be around 10-11 percent.
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