The company also revealed that advertising spending rose by 10% in the quarter.
Revenue from Operations increased by 3% YoY to Rs2,496 Crores in Q2FY23. There was underlying volume growth at 3% in domestic and constant currency growth at 11% in international.
As retail inflation remained stable in India, the FMCG sector saw a volume drop for the fourth consecutive quarter. Price growth was the driver of the FMCG sector’s growth. The demand sentiment was similar to the previous quarter, with a slight improvement in the final month.
The Company posted a modest increase in domestic volumes after a weak Q1. This was due to better traction from urban and premium discretionary portfolios. The quarterly domestic volume growth rate was a healthy 7% on a 3-year basis. Over 90% of portfolio consolidated market share. General Trade was weaker than other sales channels. The divergence between rural and urban growth became more stark as the latter suffered from persistent inflationary pressures and increased liquidity. E-commerce and MT grew by double digits.
For the seventh consecutive quarter, the international business maintained its double-digit constant currency rate growth momentum. In spite of macroeconomic uncertainty, and some currency devaluation headwinds, each market showed strength.
Gross margin grew by 115 bps YoY. A&P spending grew 10% year-on-year as the Company continued to invest in strategic brand building for core and new franchises. EBITDA margin was 17.3%, and EBITDA was up by 2% YoY. The loss on foreign currency receivable translation and the higher effective tax rate (ETR) caused a decrease in PAT of 3% YoY.
Domestic Business
Marico’s India Business saw a turnover of Rs 1,896 Crore, an increase of 1% YoY.
Parachute Rigs was down 3% volume-wise and 11% value-wise. This is mainly due to weak consumption trends, slow loss to branded conversions, and the unexpected softening of copra prices. Parachute maintained its market share in volume terms, and gained 20 bps value MS on a MAT basis. Parachute is seeing better traction thanks to the last round of pricing interventions. The brand may consider passing more value on to consumers. Volumes will stabilize in H2 once copra prices and consumer prices harmonize over the next few months.
Value Added Oils saw a 2% value growth due to downtrading, weak consumer sentiment, and especially in rural areas. The mid-and premium segments performed better than the pyramid segment. This is also evident in the 80 bps increase in value MS on MAT. If rural recovery happens on the expected lines in H2, we expect the overall franchise will grow along with the overall HPC category.
The Saffola franchise (refined edible oils and food) grew by 4%.
Saffola Oilsrecovered intelligently to post high single-digit volume growth on a normalizing base that was aided in part by key pack consumer pricing interventions.
Foods saw a 26% increase in value, with healthy growth in Oats franchises and continued traction in some recent introductions. Saffola Oats remained at the top of the Oats category, with a 320 bps MS gain on a MAT basis. Saffola Honey saw two new variants of Saffola Honey Active (Made With Sundarban Forest Honey and Saffola Honey Gold) launched during the quarter. Saffola Soya Bhurji (plant-based protein) was also introduced. H2 will see more innovations in food. The franchise has a potential revenue of INR 650 crore. In FY23, revenues were INR 650-1000 cr. In FY24.
Premium Personal Care and Digital First Portfolios (ARR close to INR 250 Cr. High double-digit growths have been recorded. Just Herbs and Beardo are growing in line with our expectations.
International Business
The international business generated a turnover of Rs 600 Crores with 11% constant currency growth.
In cc terms, Bangladesh saw a 10% increase. Growth in core franchises was supported by the newer portfolios for Baby Care and Shampoos. South East Asia saw a 10% increase in cc terms due to strong HPC growth in Vietnam. MENA and South Africa grew 11%, 16% respectively in cc terms.
Near Term
We will continue to focus on domestic business and driving penetration and market share growth across all portfolios. This will be achieved through distribution expansion, cost control, aggressive cost control, sufficient investment in brand development, market development, and adequate investment in brand building. We are optimistic about a recovery and will be closely monitoring rural growth. We expect to deliver mid-single digit volume growth in H2.
We are optimistic about maintaining our double-digit growth momentum in International business, despite macro risks in certain markets.
As copra is still in the soft zone, the gross margin should increase sequentially from Q3. However, we must be cautious about the volatility in vegetable oils. We aim to achieve 18-19% EBITDA margin for FY23, taking into consideration the quarterly gyrations across all cost line items.
Medium Term
The medium-term goal of the Company is to deliver 13-15% revenue growth, based on 8-10% domestic volume and double-digit constant foreign currency growth in International. The Company will strive to maintain an operating margin of at least 19%.
Saugata Gupta, MD & CEO, commented, “The first half ended on a fairly positive note despite the operating environment bringing little cheer. We are hopeful of a much better performance in the core domestic portfolio in the second half of the year as macro indicators and the base turn more accommodative, while the new engines continue to deliver on their promise. We are confident of sustaining the strong and profitable growth trajectory in the international markets and staying resilient amidst uncertainty in some of the markets. We believe consistent investment in our brands and focus on execution will enable us to deliver competitive volume led growth and maintain healthy profitability over the near and medium term.”
