Marico Q4 update: Volume growth on expected lines; improving margin profile a key positive

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26 Aug, 2025 12:21

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Highlights: - Rural growth higher than urban, but wholesale traction concerning - Urban-centric channels -- e-commerce and modern trade -- in fine fettle - India business gains from a deflationary raw material cycle  -------------------------------------------------

Marico’s business update for Q4 FY19 provides a dipstick check of the short-term trends before the onset of the quarterly results from the FMCG space.

Read: What explains a relatively steady show by the FMCG companies?

Rural growth higher but needs a close watch The management said demand conditions are stable, with rural growth ahead of urban, similar to the trend witnessed in the last seven quarters. However, it flagged that demand momentum in the hinterland may have moderated. In March, demand sluggishness has been witnessed through the wholesale channel. It must be noted that the wholesale channel has a rural skew.

Modern trade channels doing well In fact, urban-oriented channels such as modern trade and e-commerce continue to do well. Share of modern trade in total turnover is expected to be way higher in FY20 compared to FY19 when it clocked 11 percent of sales. Similarly, as per the company's Q3 update, the share of e-commerce has already crossed three percent compared to less than a percent a year back.

However, share of Canteen Stores Department (CSD) has stabilised to three percent from seven percent in FY18. Challenges in CSD sales seem to have passed.

Domestic volume growth The management appears positive on volume growth in Parachute (36 percent of domestic sales). Last quarter, it clocked nine percent volume growth.

The point to note is that overall volume growth in the last quarter was just five percent on account of subdued performance in Saffola edible oil (18 percent of sales) and low margin brands (Nihar Naturals and Oil of Malabar) from its coconut oil portfolio.

As far as Saffola edible oil is concerned, the management sees better sequential performance on account of marketing initiatives. Value-added hair oils (26 percent of sales) had a weak quarter and hence we would look forward to further commentary on this front.

Overall domestic volume growth is in line with the guidance, which should translate to about 10 percent volume growth coming on a soft base of one percent growth.

Operating margin to improve sequentially The management expects operating margin is to improve moderately as input costs have eased and operating leverage benefits are also expected to show.

Takeaways: Q4 volume growth commentary takes out any concern on any significant market share loss in segments, wherein it is witnessing heightened competition. The company seems to be on track with its near-term volume guidance of about 10 percent, albeit on a soft base.

Demand slackness in wholesale channel needs to be watched closely, which comes close on the heels of similar commentary from Dabur.

However, what keep us invested in the Marico story is the copra cost deflation cycle. The management expects a substantial decline in copra prices (around 20 percent year-on-year) in the new season from March. As copra constitute about 45 percent of the raw material cost, this should help the company’s earnings in a significant way. The management has maintained its earnings before interest, tax, depreciation and amortisation (EBITDA) margin guidance of more than 18 percent in FY20.

The management’s decision to harness its raw material cost advantage for long-term investments is a crucial strategic move as it helps in reducing dependence on Parachute and Saffola and drive growth in the premium segment. We acknowledge that categories like male grooming, serums, hair nourishment and foods are expected to have a significantly higher share in the next five years.

After having declined 13 percent from the highs earlier this year, the stock has been trading sideways for the last two months. At present, the counter is trading at 40 times FY20 estimated earnings, which is an about 16 percent discount to the market leader. At current levels, the stock provides an opportunity to accumulate for an increasingly diversified consumption story.