Company Reports Marico - BSE

Marico : Scaling up Brand Investments 

Reco : Hold    Cmp : 204    Target :  186

Marico reported domestic volume growth of 10% YoY (vs. our estimate of 12%). Sequential slowdown in domestic volume growth (16% in Q1) was due to softer demand in discretionary categories like premium edible oil and weak off-take in Parachute hair oils (given the rising pricing differential with regional coconut oil brands). While gross margin expanded 690 bps YoY on lower copra prices (down 33% YoY; 40% of RM cost), a large part of this benefit was utilized to increase brand investments (A&P up 450 bps).

Volume slowdown to prompt price correction

Saffola volume grew 6% YoY and Parachute grew 9% YoY in rigid packs in Q2. While company continues to gain market share in both the segments, the pricing differential over other regional brands/alternative variant continues to widen. Management indicated the company may have to align prices to maintain current pace of volume growth. We have lowered our full year Saffola volume growth estimate to 10% from 15% earlier, in line with management guidance.