Release Date: May 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Domestic volume growth inched up sequentially with steadying trends across the majority of the portfolio.
- 75% of the business either gained or maintained market share, and 100% sustained or enhanced penetration.
- Foods had a healthy quarter with organic foods portfolio growing in double digits.
- Premium personal care maintained its healthy growth trajectory, led by digital-first portfolio clocking an exit ARR of around INR450 crore.
- International business rebounded to double-digit constant currency growth in Q4 and is expected to retain momentum in FY25 and beyond.
Negative Points
- Urban growth slightly moderated while rural growth witnessed a visible uptick only towards the end of the quarter.
- Value-added hair oils were optically weak due to sluggish demand and higher competitive intensity at the bottom of the pyramid.
- General trade has been subdued by profitability pressures as a consequence of muted growth and pricing corrections in mass categories.
- The Bangladesh business faces challenges due to currency issues and overall economic conditions, despite recent recovery.
- There is a significant competitive pressure at the bottom of the pyramid in the value-added hair oils segment, impacting overall performance.
Q & A Highlights
Q: My first question is on food's vision, doubling in three years that would mean 25% CAGR and related question is taking direct reach from 1 million to 1.5 million Project SETU, for both these do you need to do more M&A or is it based on the current portfolio largely?
A: As far as Project SETU is concerned, we are under indexed in distribution in certain states. We believe that post-COVID we haven't had significant increase in distribution and therefore, we want to move from indirect to direct. The current core is good enough but you could see more aggressive participation in some of our core categories, especially value-added hair oils. We have kept an outlay of around INR70 crore to INR100 crore over the next three years for SETU, which will be funded internally from savings and reallocation of resources.
Q: Wanted to understand for Marico on India demand, in terms of the volume growth for the full year for the India business and in terms of rural versus urban, what will be your take for Marico?
A: We are definitely seeing increased rural uptick, especially during the end of the quarter while urban has moderated. For Marico, rural demand will be significantly showing improvement, at least as we gradually move towards the second half of the year. We are in a position to perhaps at this stage to say that we look forward to giving a beginning, a double-digit revenue growth, now the composition of volume and inflation, we will see as it pans during the year.
Q: On Bangladesh, you have come back to decent sales growth and you are aiming for a double-digit growth going ahead. How are things shaping up there in terms of volumes and market share?
A: Bangladesh has a relatively strong position and we are extremely robust. This last quarter sales have been on the back of volume growth and market share gains. We have significantly reduced dependence on Parachute in that market with value-added hair oil, shampoo, and baby products driving incremental growth. We expect the business to grow in double digits going ahead.
Q: I just wanted to look at -- understand Project SETU a little better. Do you see it fair to see such a reduction in inventory, lowering the impact of channels, down stocking or up stocking that is witnessed during periods of copra and vegetable oil price fluctuations?
A: Project SETU will radically improve the quality of distribution. Direct reach increases your range, assortment, control, and leads to better rates. It ensures that the entire rural area has technology-driven line visibility, reducing the cost of sales. For mass companies in our core categories, direct distribution, especially rural, will be a source for long-term competitive advantage.
Q: On VAHO, there is still a sales decline. When will the pricing anniversarize? And for Saffola, when will the price reductions anniversarize on a YoY basis?
A: For Saffola, Q2 will anniversarize in terms of getting into a level because the last price drop happened at the end of Q1. For VAHO, the shrinkflation anniversarization will happen in the next two to three months. We are focusing on value growth right now and expect rationality in competitive intensity at the bottom of the pyramid.
Q: On digital brands, like in foods, you have said that in three years you want to double the turnover, any such targets for the digital brands?
A: Yes, 2x again in three years because our endeavor is the entire portfolio, which is the diversification portfolio, to grow at 20% plus every year. We are very excited about the way Plix and Beardo are scaling up and believe we have a reasonable playbook to ensure that we profitably scale up that business.
Q: On overall consolidated margins, what kind of headroom do you see in margins over a two to three year period?
A: There are structural levers in place for margin improvement over the next three to four years. Foods have expanded gross margin by 800 basis points this year, and we expect further improvement. We are making big strides in margin improvement in digital business next year. We will also drive a better mix and expect the share of higher margin portfolio to increase. However, for the immediate next year, given the inflationary pressure, we do not see any margin improvement happening.
Q: On the genesis of the project of distribution expansion, how should we think about this as a growth driver or a quality of distribution driver, or a margin driver going forward?
A: It is both a growth and quality of distribution cost driver. There are peers in our sector who have significantly added distribution and that has resulted in growth. Our direct to indirect ratio of 5.5 is extremely high, and we believe our direct reach and retailing is far more important for challenger brands and new categories.
Q: On other income, there is a sharp dip this quarter. Is there anything one time that we should be thinking about in this quarter?
A: It is better to look at the full year number rather than quarter four because of some one-time items in the base. At a full year level, like-to-like, it has increased by about 10%. Specifically for the quarter, there was a one-time gain on the sale of land in one of our units in the base and lower investment income due to higher dividend payout. There was also an FX revaluation hit due to currency depreciation in Egypt.
Q: On VAHO, if you can help us understand the 7% decline, was it largely because of high base volumes or is there a price correction that was taken?
A: We have done relatively better in the mid and premium segments. There has been a little bit of a bottom of pyramid impact, which is a combination of shrinkflation and some volume impact. The shrinkflation anniversarization is also happening as we speak.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
