Marico recently posted its Q4FY17 financial results. During the period, the company’s India business delivered a healthy 10% volume growth as normalcy returned following demonetisation in Q3 FY17. Marico’s international business posted a constant currency top line decline of 5% (volume decline of 5%) plagued by macro-environment issues in the MENA region. Ex-MENA, the international business grew by 8% in constant currency terms.
Overall, Marico delivered volume growth of 6%. Revenue from Operations of INR 1,322 crore (USD 197 million) grew by 2% over Q4FY16.
Coming to ad spends, the company spent cautiously amidst environmental uncertainty. A lower Advertising and Sales Promotion (ASP) to sales ratio at 8.4% (Q4FY16 at 12.5%) was was posted. The company chose to delay new product launches to H1 FY18. For the full year, ASP to sales ratio was 11.1% as against 11.5% in FY16. Over the medium term ASP spends are likely remain in the range of 11-12% given the healthy innovation pipeline and renewed focus on the core portfolio. EBITDA at INR 259 crore (USD 39 million) grew by 21%. EBITDA margins at 19.6% expanded year on year basis by 301 basis points. Over the medium term, operating margin of 17-18% is sustainable. Profit after Tax (PAT) for the quarter at INR 169 crore (USD 25 million) grew by 26%.
Business-unit wise and regional details:
The India business achieved a turnover of INR 1,035 crore (USD 155 million) during the quarter, a growth of 6% over the same period last year. The healthy volume growth of 10% in Q4 was backed by strong recovery in key categories. An overall deflation of 4% during the quarter was primarily due to pending anniversarization of price reductions in the Coconut Oil portfolio taken in April’16.
The operating margin during Q4FY17 was 26.0% before corporate allocation as against 23.6% for Q4 FY16. For FY17, the operating margin was 24.3% before corporate allocation as against 21.7% in FY16. Higher operating margins can be attributed mainly to lower advertising spends this quarter.
The Parachute rigid portfolio (packs in blue bottles) witnessed volume growth of 15% in Q4FY17 over Q4FY16. The volume growth in Parachute rigid is likely to remain in the range of 5-7%. The Company has taken the prices up by 8% in March 2017.
Marico’s rural sales grew by 4% while the urban sales grew by 9% in Q4FY17. Sales in Modern Trade (10% of the India turnover) continued the good run with growth of 17% in Q4FY17. CSD and Institutional sales (7% of the India turnover) declined by 13% in Q4FY17 due to stock correction. Marico’s International Business achieved a turnover of INR 287 Crore (USD 43 million) during Q4FY17, a decline of 5% in constant currency basis (volume decline of 5%). The severe macroeconomic headwinds in the MENA region have led to the decline this quarter in the overall international business. The core markets of Bangladesh & Vietnam continued their momentum during the quarter. Consequently, excluding MENA, the International Business grew at a constant currency rate of 8% in Q4FY17.The operating margins (before corporate allocations) are at 9.8% in Q4 FY17 as against 12.9% same period last year.
The lower margin in Q4 can be attributed to a) higher advertising spends in Vietnam, b) business decline in MENA in addition to the major currency devaluation in Egypt and c) full year charge of intra-group services accounted for in Q4.
In the Bangladesh business, topline in constant currency terms grew by 5% in Q4FY17 (volume growth of 7%). In the current quarter, Parachute coconut oil reported growth of 4% in constant currency terms (volume growth of 7%) and maintained leadership position with 86% share. The Company’s value added hair oils portfolio grew at a rate of 16% in constant currency terms led by strong growth in the flagship brand ‘Beliphool’. The non-Coconut oil portfolio grew by 16% in constant currency terms in Q4 FY17.
Business in South East Asia grew by 11% in constant currency terms in Q4FY17.
The Middle East & North Africa (MENA) business declined by 46% (constant currency basis) during Q4FY17 as compared to Q4FY16. As the macro headwinds continued, the company chose to correct the distributor inventory levels in Q4, in both in the Middle East & Egypt businesses. The Middle East and the Egypt business declined by 41% and 55% respectively in constant currency terms in Q4FY17. Egyptian Pound (EGP) has depreciated by 52% against INR over the last 12 months putting pressure on margins and value growth.
The South Africa business reported a constant currency growth of 6% during the quarter despite challenging macro conditions.
Saugata Gupta, MD & CEO said, “I am fairly satisfied with the strong comeback during the quarter. The core is stronger with gains in market shares. We remain committed to a robust volume growth over medium term. As we enter FY18, we are acutely conscious of the challenges ahead. GST, the biggest indirect tax reform is round the corner. While in the long run, it will be beneficial for organised players, it will bring near term uncertainty that may disrupt trade in H1FY18. Inflation in key commodities is also imminent. We will invest in the core and the new products for which we have an exciting calendar ahead. Our operating margins which are very healthy may go down; we believe that focus on franchise expansion with threshold margins will stand us in good stead as we write a long term profitable growth story.”