MARICONSEQ1FY24August 4, 2023

Marico Limited

9,468words
78turns
10analyst exchanges
2executives
Management on call
Saugata Gupta
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, MARICO LIMITED
Pawan Agrawal
CHIEF FINANCIAL OFFICER, MARICO LIMITED
Key numbers — 37 extracted
5%
dent green shoots in rural were not yet visible. Factors such as retail inflation dropping to sub-5% levels, late pickup in monsoons, hike in kharif crop MSPs and higher government spending continue
3%
trong linkage to rural growth. Moving on to our performance in the quarter, domestic volumes grew 3%, which is lower than our expectations. However, it should be read in the context of a couple of o
30%
g inventory levels in Saffola Edible Oils, while we’ve taken multiple pricing cuts (amounting to ~30% YoY) to pass on the benefits to consumers. As a result, Saffola Edible Oils recovered partially o
85%
ct volume growth to resume an improving trajectory from Q2, as indicated by healthy offtakes and ~85% of our portfolio either gaining/sustaining market share and penetration, on MAT basis. Therefore,
20%
arget for this year through Foods and Premium Personal Care portfolios cumulatively contributing ~20% to domestic revenues. In Foods, our scale-up continued with growth in the mid-twenties. Growth in
Rs. 150
by upholding evolving consumer needs and sound business fundamentals and is now clocking ARR of ~Rs. 150 cr+ with very low cash burn. It is evident that we are a strategic investor of choice for founders
10%
sification: Official performance as well. We expect this portfolio to contribute to ~10% of domestic revenues in FY24. As specific Foods and Digital-first franchises attain scale, we a
Rs. 40 crore
. So, in terms of the business ‘Plix’, what is the right to win? I see a very sharp scale up from Rs. 40 crores in FY22 to broadly Rs. 106 crores in FY23 and now ARR of Rs. 1.5 billion and in this kind of for
Rs. 106 crore
lix’, what is the right to win? I see a very sharp scale up from Rs. 40 crores in FY22 to broadly Rs. 106 crores in FY23 and now ARR of Rs. 1.5 billion and in this kind of format there are lot of other players
Rs. 1.5 billion
a very sharp scale up from Rs. 40 crores in FY22 to broadly Rs. 106 crores in FY23 and now ARR of Rs. 1.5 billion and in this kind of format there are lot of other players. If you could also talk about the distr
Rs. 80 crore
al brand needs to get to a critical mass in the E-Com and their own D2C space of hitting at least Rs. 80 crores to Rs. 100 crores and a certain level of set of consumers and level of saliency awareness before
Rs. 100 crore
get to a critical mass in the E-Com and their own D2C space of hitting at least Rs. 80 crores to Rs. 100 crores and a certain level of set of consumers and level of saliency awareness before it goes into omni
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Guidance — 20 items
Saugata Gupta
opening
“Since offtakes have remained healthy and the worst of volatility is mostly likely over now, we expect growth in Saffola Edible Oils to be steady going ahead.”
Saugata Gupta
opening
“While volume growth in core categories of Coconut Oil and Value Added Hair Oils was subdued in Q1 by this one-off impact and muted rural sentiment, we expect an uptick in both portfolios from Q2.”
Saugata Gupta
opening
“Now that one-offs are out of the way, we expect volume growth to resume an improving trajectory from Q2, as indicated by healthy offtakes and ~85% of our portfolio either gaining/sustaining market share and penetration, on MAT basis.”
Saugata Gupta
opening
“Coming to our newer categories, we have made a positive start in the course of achieving our diversification target for this year through Foods and Premium Personal Care portfolios cumulatively contributing ~20% to domestic revenues.”
Saugata Gupta
opening
“We expect this portfolio to contribute to ~10% of domestic revenues in FY24.”
Saugata Gupta
opening
“Therefore, we expect revenue growth to move into positive territory in the second half of the year.”
Saugata Gupta
opening
“While we will continue to invest in A&P and maintain our share of voice ahead of share of market, we expect operating margins to expand to 20%+ levels in FY24, higher than envisaged earlier.”
Pawan Agrawal
qa
“Now to talk about operating margins, currently many of these businesses will be in investment phase.”
Pawan Agrawal
qa
“So, as and when these businesses cross those scale, that will be the right time to look at the operating margin.”
Percy Panthaki
qa
“So, what I wanted to ask is on a medium-term basis, on a two-to-four-year kind of a basis, do you see your margin stabilizing at this 20% or do you still see over that time horizon expansion in the overall company level margin at a consolidated level?”
Risks & concerns — 8 flagged
Factors such as retail inflation dropping to sub-5% levels, late pickup in monsoons, hike in kharif crop MSPs and higher government spending continue to give hopes of a gradual recovery in rural sentiment, although, the extent of impact of spatial distribution of rainfall and erratic weather patterns on rural farm incomes may also have a bearing on sentiment in the near- term.
— Saugata Gupta
So, even if the margin improves hypothetically, let's say from a 3% to a 10%, but a 10% on a significantly higher base because it's a faster growing business, does that put a drag on your overall company margins?
— Percy Panthaki
But you know, it's very difficult to get into that.
— Saugata Gupta
The problem is more of an STR thing and that we need a slightly more steady and less volatile raw material.
— Saugata Gupta
So, Latika, it is very difficult, there has been a very mild increase in our set of edible oils which we use, in the last week actually.
— Saugata Gupta
We are also indicating that the volume growth, while we started with the three, it will be more as we move into the Q2 and second half, but it is very difficult to fathom whether Saffola inflation will happen or no and right now everything is modeled on the current pricing of Saffola.
— Saugata Gupta
It's very difficult to have a right forecast, even the best of the international agencies has not been able to get the right forecast for edible oil.
— Pawan Agrawal
So, at the end of the day, ultimately, sadly enough oil and water doesn't mix, and Personal Care is far less volatile to your commodity.
— Saugata Gupta
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Q&A — 10 exchanges
Q
Thanks. My first question is on yesterday's acquisition. So, in terms of the business ‘Plix’, what is the right to win? I see a very sharp scale up from Rs. 40 crores in FY22 to broadly Rs. 106 crores in FY23 and now ARR of Rs. 1.5 billion and in this kind of format there are lot of other players. If you could also talk about the distribution in terms of physical and online? And is there any kind of synergy benefits you see from your other digital business or say other acquisitions you have done in the last 6-7 years?
Saugata Gupta
First of all, Plix is largely online and therefore obviously one of the things that they need to do is expand. We firmly believe that any digital brand needs to get to a critical mass in the E-Com and their own D2C space of hitting at least Rs. 80 crores to Rs. 100 crores and a certain level of set of consumers and level of saliency awareness before it goes into omnichannel. I think while the current run rate of 150 crore is very encouraging and I think it is right scale for going to Omnichannel, I think there's still a tremendous potential to max out in online. I believe, Plix has the right t
Q
My first question is on margin. So, you mentioned that this year you will do about a 20% kind of margin. If I look at your margins historically, this is probably the highest or close to the highest margin that you would be clocking as a company. So, what I wanted to ask is on a medium-term basis, on a two-to-four-year kind of a basis, do you see your margin stabilizing at this 20% or do you still see over that time horizon expansion in the overall company level margin at a consolidated level?
Saugata Gupta
So, I think there are two things. One is, as I said, you are absolutely right, so we are pretty confident that we should be able to cross the 20% mark in margins this year. Now, unless there is significantly black swan inflation that hits in simultaneously on copra, crude and everything in one particular year, I think it will start improving because there are multiple parts to it. One, I think in foods, for example, as we scale up, we'll be significantly starting the margin improvement program on Foods because we are very mindful that while we grow foods, we shouldn't get our eyes off the marg
Q
A couple of questions. We know the primary growth, because of this channel issue and the measures that you have taken on the trade scheme rationalization, what would be the secondary roughly speaking?
Saugata Gupta
A couple of percent. I don't want to get into specifics and as I said that is not an excuse for why we have done three, okay, so I think it will be a couple of percentage points there. And that will be primarily in case of parachute and VAHO? And it's only in parachute and VAHO, that's right. Okay, got it. See, I will tell you one thing, so that you have a perspective that if you look at historically long ago Q1 was 31%, we have got it down to 27%. We want to take it down to 25%. So, that should explain the thing. So, that also means because there is a destocking in this quarter. So, this shou
Q
So, my question on margin has been answered. I have second question on your Foods and Premium Personal Care portfolio. So, that has come to now almost 20% of your domestic revenue. So, if I take, let's say three years sort of a view, what's our internal target for this as a percentage of overall domestic revenue here?
Saugata Gupta
No, I think we don't have any further target. I think we should ensure that obviously this part of the portfolio will be a growth portfolio. Having said that, we are looking at how do you grow this portfolio profitably. So, foods gross margin needs to increase and we'll also focus on the digital brands. In fact, compared to, as I already said, that if you look at Plix with some other similar brand in that space, you look at Beardo versus some similar brand in this space, our burn rates are far lower, but at the end of the day, how do you get them into profitability space very quickly. So, it's
Q
Hi Saugata and Pawan. My first question is on pricing. Clearly on Saffola edible oil, there is a fair bit of volatility and we recently saw firming up of palm oil prices. Do you see that pricing for Saffola needs to be taken up if this firmness sustains and how soon that can happen? What is the implication of revenue growth in the second half? I heard Pawan saying that Q2 could be flattish, but as you move into second half, does price inflation completely goes away in your own assessment?
Saugata Gupta
So, Latika, it is very difficult, there has been a very mild increase in our set of edible oils which we use, in the last week actually. Now it's very difficult to say. All I can say is that this quarter, we are a 30% deflation. The deflation numbers will keep on decreasing and in the second half there will be no deflation. As we exit, we might move into slight inflation and therefore revenue growth will be volume growth or volume growth plus. We are also indicating that the volume growth, while we started with the three, it will be more as we move into the Q2 and second half, but it is very d
Q
My first question was actually on the acquisition again. So, the difference I see with your past acquisitions in the recent past is that this seems to already be at a reasonably larger scale of Rs. 150 crore ARR. And on account of product segment, they are in the business of plant-based protein, at what growth rate can this grow from a base which is already Rs. 150 crores because it seems a pretty large number for these kinds of brands to achieve. And does it mean that being plant-based it's going to be a bit of a niche within the protein and nutraceutical market or it's not necessary that the
Saugata Gupta
So, the way we see it is that if you look at India, even plant protein is going to be a big driver of growth and as opposed to the entry point in the Western markets where a lot of plant protein has started off with mock meat and other things, here it is a plant protein nutraceutical or plant protein in the form of soya which we are already doing in Foods. Now coming to any nutraceutical, there are four or five drivers of growth. So, there is heart health, there is weight management, there is diabetes or sugar management, there is gut health and lastly bone health. So, these are the five platf
Q
I just had one question and more on the medium term, I would say. Saugata, the question is, from your lens, what is the current positioning of the Saffola brand in the minds of the consumer. And I'll tell you why I asked this question is basically company has embarked on this diversification strategy in the last few years. So, is there a thought here that over a period of time we could be thinking about reducing our exposure to edible oil because it kind of adds to the volatility in the business. So, I just wanted to hear your thoughts on that.
Saugata Gupta
You're absolutely correct. I think my dream is that in another 3-4 years from now, our Foods becomes higher than edible oil in the portfolio, because that way we will derisk this commodity and one of the things we internally track is how much over the next five years, we'll continue to do a commodity derisking on our portfolio. So, at the end of the day, ultimately, sadly enough oil and water doesn't mix, and Personal Care is far less volatile to your commodity. RM percentage as a percentage of net realization needs to continue to decrease and that is something we track over the next five year
Q
I'm on Slide #7 and I'm just reading the numbers where you have given PCNO number, which is (2%) volume and (5%) value growth. And VAHO is flat in terms of value. Just more curious if I track the journey of last eight quarters, about eight quarters before there was down trading and VAHO was doing significantly well, you alluded that now the entry point VAHO has seen a lot of competition. In terms of consumer behavior, I just wanted to understand, I'm not looking at the primary number, but on ground. Is the consumer shift primarily affected in the mass end of the product because of food inflati
Saugata Gupta
So, let me just address it in two parts. So, if you look at the last and I'm alluding to the last 5-6 quarters. What has happened is in the case of value-added hair oil, it somewhere mirrors some of the mass personal categories where there is significant amount of rural consumption and agnostic consumption in terms of quantity across different LSM classes. So, whenever there is inflation, so compared to your premium skin care and other parts of the Personal Care portfolio VAHO or soaps and others, these kinds of categories will get impacted far more. Or what we have seen actually if you look a
Q
My question was on overseas margins, the margins are 29%+ this quarter. What drove this? And do you think these will be sustainable?
Pawan Agrawal
This is largely driven by again copra gains in Bangladesh and going ahead should be at the levels of 25-26%.
Q
To conclude, we had a slow start to FY24 on the top line front due to one-offs in the domestic business, but we draw confidence from underlying indicators of a pickup in domestic volume growth followed by tapering off in pricing deflation from here on. The international business has been resilient and we expect to sustain its healthy growth momentum. Given the commodity input cost environment, we will continue to aggressively invest to drive an improving trajectory of growth in the core and newer portfolio. That being said, we should be able to deliver healthy margin on a year-on-year basis th
Management
Speaking time
Saugata Gupta
27
Moderator
12
Pawan Agrawal
8
Vivek Maheshwari
8
Latika Chopra
5
Abneesh Roy
4
Percy Panthaki
4
Arnab Mitra
4
Sheela Rathi
3
Suresh Pardeshi
2
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Opening remarks
Saugata Gupta
Good evening to all those of you who have joined the call. Let me start by giving a flavour of the operating environment during the quarter that has gone by, after which I shall touch upon our performance, followed by our strategy and outlook for the year ahead. Volume growth for the FMCG sector was in the positive territory for the second consecutive quarter, led by steady growth in urban, however, evident green shoots in rural were not yet visible. Factors such as retail inflation dropping to sub-5% levels, late pickup in monsoons, hike in kharif crop MSPs and higher government spending continue to give hopes of a gradual recovery in rural sentiment, although, the extent of impact of spatial distribution of rainfall and erratic weather patterns on rural farm incomes may also have a bearing on sentiment in the near- term. However, so far at least South and West part of country, monsoons look good. While companies are taking price cuts in reaction to moderating commodity inflation, pri
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