MARICONSEQ2FY24November 3, 2023

Marico Limited

7,840words
65turns
8analyst exchanges
2executives
Management on call
Saugata Gupta
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, MARICO LIMITED
Pawan Agrawal
CHIEF FINANCIAL OFFICER, MARICO LIMITED
Key numbers — 24 extracted
rs,
er realizations impacting distributor ROIs resulting in reduced credit availability to the retailers, which in turn led to a drop in retail inventory levels or STR. This was also evident in channel-wi
20%
th trends where GT declined with a low single digit on a Y-o-Y basis while MT and E-com witnessed 20% plus growth. Over the next few quarters, we will systematically address this GT issue and the def
4%
r, Parachute had a muted quarter in the given environment, while the four-year volume CAGR was at 4%, just short of the medium target range. The franchise gained 35 bps in market share on MAT basis.
35 bps
the four-year volume CAGR was at 4%, just short of the medium target range. The franchise gained 35 bps in market share on MAT basis. As copra price is likely to inch up as we enter the off season, we
Rs. 100 crore
lio grew in double digits, while Honey and Soya scaled up well. Both these categories are nearing Rs. 100 crores at an annual run rate. Our new launches of Peanut Butter, Mayonnaise, and Munchiez are tracking
30%
ties. Once we optimize these, we will endeavor to accelerate our Foods growth next year to beyond 30%. Premium Personal Care delivered healthy double-digit growth and is on track to contribute 10%
10%
nd 30%. Premium Personal Care delivered healthy double-digit growth and is on track to contribute 10% of FY24 domestic revenue. The Digital-First brand, led by Beardo and Just Herbs, clocked Rs. 35
Rs. 350 crore
bute 10% of FY24 domestic revenue. The Digital-First brand, led by Beardo and Just Herbs, clocked Rs. 350 crores ARR in Q2. There is a significant reduction in cash burn, and we believe that we are best-in-cla
400 bps
s margin expansion in the quarter and the first half going to soft input prices and expect 350 to 400 bps of gross margin expansion on a full-year basis. We also significantly ramped up A&P spend in Q2 i
9.5%
pact significantly over the next couple of quarters. A&P as a percentage of sales is likely to be 9.5%+ this year. In light of the H1 performance, we expect operating margin to expand by 200 bps in FY
200 bps
ly to be 9.5%+ this year. In light of the H1 performance, we expect operating margin to expand by 200 bps in FY24, and we are on course to deliver our highest-ever operating margin on a full year basis t
Rs. 300
rands like Mamaearth, WOW in e-commerce, not so much in modern trade. So, we don't participate in Rs. 300 plus kind of a price point. Having said that, below the Rs. 300 plus price point we have a fair sh
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Guidance — 20 items
Saugata Gupta
opening
“Delving further, Parachute had a muted quarter in the given environment, while the four-year volume CAGR was at 4%, just short of the medium target range.”
Saugata Gupta
opening
“As copra price is likely to inch up as we enter the off season, we expect a gradual pick up in loose to branded conversions in view of our cost advantage, which will aid volume growth in the near term.”
Saugata Gupta
opening
“With the anniversarization of price cuts in this quarter, we expect value growth to largely mirror volume growth in H2.”
Saugata Gupta
opening
“Volume growth on a four-year CAGR basis was in the high single digits, in line with our medium-term growth aspirations.”
Saugata Gupta
opening
“Email: investor@marico.com Marico Information classification: Official Foods continue with steady trajectory, and we are largely on track to meet our FY24 revenue aspirations.”
Saugata Gupta
opening
“Once we optimize these, we will endeavor to accelerate our Foods growth next year to beyond 30%.”
Saugata Gupta
opening
“Premium Personal Care delivered healthy double-digit growth and is on track to contribute 10% of FY24 domestic revenue.”
Saugata Gupta
opening
“We expect the economic situation to improve early next calendar year, although the currency depreciation issue will remain for some time.”
Saugata Gupta
opening
“We expect revenue growth to move into the positive territory in the second half of the year as pricing deflation in the domestic business slightly tapers off.”
Saugata Gupta
opening
“We recorded robust gross margin expansion in the quarter and the first half going to soft input prices and expect 350 to 400 bps of gross margin expansion on a full-year basis.”
Risks & concerns — 4 flagged
And any regional flavor you can give within the rural pickup or slowdown?
— Tejash Shah
Growth obviously in Bangladesh is being impacted this year with volatile macro over there, but that doesn't seem to be having a bearing on your margins.
— Akshen Thakkar
So, my first question was with respect to your comment on the GT decline of low single digit.
— Sheela Rathi
I just wanted to understand here, is it any specific category or specific market where we are seeing this decline?
— Sheela Rathi
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Q&A — 8 exchanges
Q
My first question is on VAHO. So, you have been taking lot of interventions in VAHO to ramp up the premiumization. So, two questions there. One is in terms of the blended oil and shampoo usage by customer. If you could tell within the alternate channel now how much is the propensity of customer to consume both shampoo and oil together? And second is, what would be your long-term 3-5-year target within alternate channel to have in the premium part of VAHO? VAHO itself is premium, but I am sure you must be benchmarking that 30% of VAHO should come from premium in alternate. So, if you could shar
Saugata Gupta
So, VAHO, if you ask me whether it’s a little under-indexed in the alternate channels, the answer is yes. Having said that, I think the premiumization journey has started. Obviously, the bottom Regd. Off: 7th Floor, Grande Palladium, 175, CST Road, Kalina, Santa Cruz (East), Mumbai – 400098. CIN: L15140MH1988PLC049208. Email: investor@marico.com Marico Information classification: Official of pyramid doesn't exist in alternate channels, similar to the case in shampoo where the entire market is in rigids. Now coming to the two vectors of premiumization, one is sensorial, and other is problem sol
Q
Saugata, on the success that we have seen in Saffola Oats and congrats for that, just wanted to know reflecting on the journey, is there any playbook which is emerging which we can kind of replicate in our future launches in terms of category selection, channel selection, or a price point selection?
Saugata Gupta
I think there are three to four learnings. First, Saffola is pre-sold on health. Therefore, we don't have to push health on Saffola, and therefore, you have to make the product deliver on taste as a green. So, all product tests we do, it has to deliver green on taste because no Indian consumer is willing to compromise on taste for health. That has been the first learning. Second, it doesn't matter if your price point is 15 to drive penetration because, for at least six, seven years, we were at a 50% premium to our nearest competitor in masala oats. The third learning in the playbook is that ev
Q
Just a question on the diversification agenda. So, you have highlighted that premium personal care will get to 10% run rate by the end of the year. Foods obviously scaled up. Together this is now as you have called out 20% by the end of the year. The last two, three years obviously you scaled the top line very well. Just wanted to get the management's view on how are we thinking about profitability of foods, premium personal portfolio, D2C, as in aggregate, how should we be thinking about margins three to four years from now? So, you have obviously done very well on top line. I am guessing tod
Saugata Gupta
First, let me just give you a perspective on that, if you look at this year, and I started off by saying that while we continue the journey from moving from 15% to 20%, two things we will Regd. Off: 7th Floor, Grande Palladium, 175, CST Road, Kalina, Santa Cruz (East), Mumbai – 400098. CIN: L15140MH1988PLC049208. Email: investor@marico.com Marico Information classification: Official look at. One is, how do you move the Foods gross margin. Second thing is, how do you reduce the cash burn of digital. I think we have taken significant steps towards that. Now one of the things we have actually res
Q
Thanks for taking my question. Could you explain to us like how much is the difference between the secondary and the primary growth? And like when we are talking about the second half of the year, how much should we think that we can catch up in the second half of this year itself?
Saugata Gupta
No, I don't think I alluded to secondary or primary growth. what I alluded to is an STR correction which means offtakes are ahead of secondary. Secondary and primary are always broadly in- line. I think what we alluded to is if you look at the Nielsen numbers versus what is the volume growth reported by most of the companies, you will see a difference. And we believe a lot of it has got to do with a combination of two things. One, maybe smaller players are gaining share, Nielsen is not picking that up, right, and the other is STR reduction. So, I don't think it's primary or secondary. In fact,
Q
So, my first question was with respect to your comment on the GT decline of low single digit. I just wanted to understand here, is it any specific category or specific market where we are seeing this decline? And what is our expectation in terms of the trend going ahead, especially in this quarter? Regd. Off: 7th Floor, Grande Palladium, 175, CST Road, Kalina, Santa Cruz (East), Mumbai – 400098. CIN: L15140MH1988PLC049208. Email: investor@marico.com Marico Information classification: Official
Saugata Gupta
So, if you look at it, the reason is that the entire rural obviously goes to GT, and therefore rural is one place where there is obviously an issue. The second is that in the top urban towns, if modern trade and e-com continues to do well, there is a steady erosion of the GT contribution which has happened in the last two to three years. During COVID, obviously GT had an advantage because modern trade was not functioning, and therefore, there was a movement from modern trade to GT which has got reversed. So, these are the two reasons. I think what I am alluding to is ultimately that we have to
Q
I just wanted to get some insights into the go-to-market strategy on the Foods that we initiated. Any feedback on that? And can that be leveraged? Or is this helping us to increase our overall distribution reach?
Saugata Gupta
No, so I think the food outlets what we are doing are only urban specialty food outlets. They are essentially a mixture of open format outlets. In South India, it could be bakeries. So, these are basically outlets which have a food skew. It was not that we were not present in some of the outlets. We are already present. The reason we have put a separate Foods GTM in these outlets is, if you look at the rest of the portfolio versus Foods, the products which we have, the selling norms, the merchandising, the replenishment model is completely different. We wanted to give it more focus. Secondly,
Q
My question was around some of the brands that you have acquired or launched over the recent years. So, True Elements was something that was acquired about a year ago, and then, of course, you recently got Plix in your portfolio. What’s been your reading of, these brands have, particularly True Elements, and has that been able to meet your action standards? And at what level do you think these brands will be ready for a more wider roll out in the general trade? And similarly on your Digital First portfolio, your experience with Just Herbs and Pure Sense and Coco Soul, how are these faring? And
Saugata Gupta
I think as far as organic growth rate is concerned, let me answer that. I think Pawan alluded to it sometime earlier that we have chosen a model where it grows perhaps by 20-25% organically, but we will also focus on profitability. Now, if I had to give you an overall perspective on digital business, has it met aspirations? It has met aspirations. Beardo has performed extremely well. We are also extremely gung-ho on the business model of Plix. Just Herbs is meeting aspirations. Again, Just Herbs will be the third brand to perhaps cross an exit run rate of nearly 100 crore and get into profitab
Q
Thanks for listening on the call. To conclude, we have been fairly resilient in the first half of this year amidst challenging demand conditions in India and macro headwinds in select overseas market. In the quarters ahead, we will be focused on driving competitive domestic volume growth and maintaining the strong momentum in the international business. We are likely to have a good year in terms of profitability, even though we have been uncompromising towards investing behind brand building of our franchises. We have also fared reasonably well on the strategic imperatives that we had called o
Management
Speaking time
Saugata Gupta
27
Moderator
10
Amit Purohit
7
Abneesh Roy
4
Tejash Shah
4
Pawan Agrawal
4
Sheela Rathi
4
Akshen Thakkar
3
Amit Rustagi
1
Latika Chopra
1
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Opening remarks
Saugata Gupta
Hi, everyone. Good evening to all those who have joined the call, and please accept my greetings for the festive season ahead. I would like to begin by reflecting on the operating environment for the quarter, post which I will give you a flavor of the performance so far, followed by our strategy and outlook for the year ahead. During the quarter, demand trends remained largely in line with the preceding quarter. Q2 started on a positive note with reasonably encouraging demand trends in rural and urban in the month of July. This gave us hope for a better quarter when I spoke to you during the last call. However, there was a noticeable drop in overall sentiment, especially in rural during August and early September, which seemed to have been triggered by significantly deficient rainfall in August, followed by a spike in food prices across. We have seen some recovery since the second half of September and we are optimistic about the gradual pickup in consumption with the onset of festive
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