The benefits that a company can reap by investing in creating a strong brand for its products is exemplified by Marico, which has been able to increase sales volumes of its key products despite taking steep price hikes to combat input cost inflation.
Around 60% of Marico’s sales come from the hair oil and edible oil category, where its brands like Parachute and Saffola enjoy a strong connect with consumers. In the hair oil category, only two companies, Marico and Dabur, together account for around 50% of the total market, with several unbranded local players making up the rest.
In the six months to September 30, Marico upped prices of its primary franchise of Parachute hair oils (comprising 23% of its overall sales) by 41%, and its value-added hair oils by 18%, “as the price of copra oil, the key ingredient used to make coconut oil, continues to rise,” Morningstar reported.
Despite these steep price increases, volumes have continued to go up by 6% and 12% for Parachute and value-added oils respectively. In the edible oils category—where Marico owns the Saffola brand—though input costs fell, Marico raised prices by 6%, volumes rose by 10%.
“The pricing power that Marico’s brands enjoy in the Indian market is evident from this continuing trend of simultaneous price-plus-volume growth,” Morningstar observed. Marico reported a net profit of R118 crore for the July-September period, up 12% year-on-year, while its consolidated sales grew 28% to R1,431 in the same period. The firm’s domestic revenues grew 36% over the year earlier in the September quarter aided by price increases across its product portfolio.
The healthy growth in Marico’s earnings at a time when consumer product firms faced multiple challenges, including cost inflation, is evidence of the strength of its brands.
Vivek Karve, Marico’s chief financial officer told FE the equity of its brands allowed Marico to pass on the cost push to consumers, while retaining the strength of the franchise.
“However, we are focused on protecting the consumer franchise in preference to short term margins,” Karve said, adding that only a fraction of the cost in flat opm was passed on to consumers.
Abneesh Roy, associate director, at Edelweiss Securities, says Marico’s September quarter earnings surpassed market expectations. “The consumer product business recorded a five quarter-high volume growth of 8% year-on-year, a classic case of how sharp inflationary conditions help the market leader,” Roy said in a report.
With inflation on a downward spiral and commodity prices cooling off, Marico is expected to improve upon its operating profit margins; the management says it will double revenues in four years “Over the last three months, the (Marico) stock has given around 20% returns, outperforming most of its peers in the mid-cap consumer space. We believe the outperformance is likely to continue over the longer term,” the IDFC report said.