Volume growth, price hikes drive optimism on Marico

It should deliver strong revenue growth because of easing input costs

The stock of Marico was up over 8 per cent on expectations of strong volume growth in FY22, easing of commodity prices, and pricing action which should reflect on revenue growth and margins.

The Street’s confidence about Marico’s prospects emanates from the 25 per cent volume growth performance in the March quarter. Its three main segments of Saffola, value-added hair oils, and Parachute posted volume growth of 17-29 per cent on a low base, market share gains from the organised segment, and higher in-home consumption. Volume growth even after accounting for the low base was up 18-20 per cent.

Among the key segments, volume growth of 17 per cent for Saffola stood out, given the high base and the 30 per cent price hike the company took over the second half of FY21. The company implemented a further increase in prices in April of about 15-20 per cent to offset the sharp rise in input (rice bran oil) costs.

Saffola has been the beneficiary of higher penetration as consumers tilt towards healthier options over the last year due to the pandemic. This is the sixth consecutive quarter of double-digit growth for the segment which accounts for a fifth of the domestic revenue.

The foods business, too, reported strong growth at 134 per cent, crossing the ~300-crore mark in FY21 with most segments within it, such as soya chunks, honey, and oats recording strong growth. The company continues to invest in chyawanprash and noodles; it is looking to scale up the revenue from the food category to ~800-850 crore by FY24.

While value-added hair oil segment growth was moderate, Parachute continued its strong performance with volume growth of 9 per cent. The company took a price hike of 9 per cent, given the 25 per cent rise in copra prices. The rising input costs is helping it gain market share from unorganised players.

Given the 300-359 basis points contraction in operating profit margins on sequential and YOY bases, the margin movement will be keenly tracked. The company indicated that gross margin will improve on a sequential basis given that the prices of copra have corrected 15 per cent from peak and the price hikes across segments taken, so far, will support profitability.

While most analysts have revised their revenue growth forecasts for FY22, given higher volume growth and pricing action, they are watchful on the margin trajectory. Given the recent price rally, brokerages suggest investors await a better entry point into the stock.