Marico: tightening margins

The December 2009 quarter for the FMCG major Marico was mostly in line with expectations, better than industry volume growth, which stood at around 14%. The company’s Ebitda margin rose by 205 basis points. Overall, Marico’s Ebitda jumped 24.9% over the same period of the previous year to touch Rs 98.8 crore and the operating margin rose to 14.8% from 12%registered in the December 2008 quarter. Lower raw material cost clearly was an advantage for the company as the raw-material-to-sales ratio shrunk 765 basis points. Cost of copra and safflower, both key raw materials, fell 22% and 28%, respectively, over the year during the December 2009 quarter. However, net sales growth at 7.5% was lower than expectations mainly on price reductions. Moreover, the company managed to reduce its raw material expenses and used the funds to spruce up its advertising spend. The advertising and promotion expenses grew by 190 basis points over the year and the ratio of advertising and promotions as a percentage of sales rose to12.8% from 10% in the previous year. Marico’s flagship brand Parachute recorded an 8% volume growth for the quarter while volumes for Saffola rose 18%. The value-added hair oil category clocked 10% growth during the quarter, point out analysts. The international business surged 24% in revenue terms. While the performance has been strong there are some areas of concerns emerging, reckon analysts. The Kaya, specialty clinics, have not been growing at the expected pace. During the December 2009 quarter, the Kaya rose by 10% in revenue terms but fell 9% on a sequential basis; same clinic revenues for Indian centres also declined by 13% on an annual basis, say analysts. Price hike undertaken on the imposition of service tax from September 1, 2009, seemed to have dented the segment’s performance. Going ahead, prices of key raw materials have started firming up. Copra prices rose by 16% in the last two months. Prices of crude oil derivatives such as HDPE (packaging material) and liquid paraffin are also firming up. Similarly, safflower oil prices are firming up with the trend witnessed in edible oils. Analysts are therefore looking out for the company to manage these prices. And, since the company had not raised prices earlier, it could well be in a position to do so now.

Marico: tightening margins

The December 2009 quarter for the FMCG major Marico was mostly in line with expectations, better than industry volume growth, which stood at around 14%. The company's Ebitda margin rose by 205 basis points.