Marico Limited (531642) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Marico Limited Q1 FY '27 Earnings Conference Call. We have with us the senior management of Marico, represented by Mr. Saugata Gupta, MD and CEO; and Mr. Pawan Agrawal, Group CFO and CEO, International Business. [Operator Instructions] Q&A Session is only for institutional investors and analysts, and therefore if there is anybody else who is not an institutional investor or analyst but would like to ask questions, please directly reach out to Marico's Investor Relations team. I now hand the conference over to Mr. Saugata Gupta. Thank you, and over to you.

Yes. Hi. Good evening, everyone, and thanks for joining the call. I'll start with a perspective on the operating environment during the quarter gone by, after which I'll cover our performance, strategic priorities and our outlook going forward. During the quarter, macro environment globally remained volatile with supply chain disruptions and increasing energy costs impacting economic activity. Despite these global headwinds, India continued to demonstrate resilience backed by strong underlying fundamentals. Domestic demand remained healthy and economic activity continued to expand. While there was a rise in consumer inflation led by food and a marginal fuel price hike, it remained within RBI's threshold. On the other hand, most of the international economies where we are operating have experienced some transient headwinds due to ongoing geopolitical development in the form of inflation and other costs. Moving on to our performance. We have started the year on a very strong note with a consolidated revenue growth at 23% and EBITDA and PAT growth of 25%, making our highest profit growth in the last 28 quarters. The India business delivered one of the strongest quarters in recent years with 11% volume growth and revenue growth of 21%, led by robust momentum in core business and continued scale-up of new growth engines. Over 96% of the business continued to gain or sustain market share and over 99% of the business continued to gain or sustain penetration on a MAT basis. The strong brand performance was well complemented by sharp execution across channels. Both general trade and modern trade recorded double-digit growth. The success of Project Phase 2 continues to strengthen our general trade execution, driving wider reach, superior assortment quality, improved service levels and therefore, improved ROI for our distribution partners. Quick commerce continued its accelerated scale up, reporting more than 50% growth for our core business. It now contributes to around 5% of India business revenues, excluding digital brands, and all digital channels put together account to over 20% of India business revenues. International business reported 15% constant currency growth, led by outperformance in Vietnam and MENA. Talking about our bottom line performance, gross margin expanded 30 basis points year-on-year, led by softer copra prices, a favorable channel and portfolio mix coming from our strong growth in premium portfolio, GT growth and profitable scale up of our food and digital portfolio. A advertising and sales promotion expenses grew substantially at 25% as we continue to invest significantly behind brands to strengthen our long-term equity, support innovation, some of the big innovations we have launched this quarter and drive consumer salience. EBITDA margin improved 40 basis points year-on-year to 20.7%. Overall, this was a very strong quarter for us, even noteworthy as it builds on a high base from the corresponding period last year. On a 2-year basis, volume, revenue and profit after tax have compounded at 10%, 23% and 17%, respectively, reflecting our strength of our portfolio of brands and execution prowess and our resilience. Let us now touch upon the key trends across our domestic business. Parachute Rigids delivered 10% volume growth with strongest performance in the last 20 quarters. and gained over 400 basis points in volume share, marking a new high. Revenue grew 23%, reflecting the anniversarization of prior year price increases and pricing actions done during the quarter as we proactively passed on value to the consumers in non-price point large packs amid softening in copra prices. Beyond the strong quarterly outcome, the performance underscores the enduring strength of the franchise and the competitive advantage we have built in supply chain compared to smaller players over decades. Our expertise in managing commodity cycles, combined with a differentiated supply chain and sharp execution enables us to respond faster to market changes based on a lot of learnings over the past few cycles where we have taken price drops. Value-added hair oils continued its strong momentum, delivering 22% value growth led by mid- and premium segment. Premium and mid- and premium hair oils portfolio contributed close to high teens volume growth, which this is the profitable part of the mix. We continue to gain market share handsomely. Further, we are seeing encouraging progress in our almond oil franchise, and our aim is to build it to INR 100 crore plus ARR franchise by FY '28. Our performance in VAHO reflects the growing strength of our premium portfolio, supported by sustained investment in innovation, premiumization and distribution expansion and VAHO has benefited immensely by Project 2. Saffola Edible Oil delivered 7% revenue growth during the quarter as we implemented calibrated pricing actions in response to further increase in input costs. The business reported a high single-digit volume decline as we rationalized supply of select variants in certain channels to maintain threshold profitability in the trade-off with volume growth. Our diversification agenda continues to gather momentum. The combined Foods and Premium Personal Care portfolio, including digital-first brand, has achieved significant scale and is increasingly becoming an important contributor to our growth. More importantly, these businesses are not only growing ahead of the core portfolio, but are also improving quality with stronger profitability, deeper consumer relevance and expanding addressable market we have besides our own internal capability. Foods continued its strong growth trajectory, reporting a 43% growth and crossing annualized revenue run rate of INR 1,300 crores. The addition of 4,700 BC and Cosmic expands our addressable market into attractive demand spaces, while the core Saffola Foods franchise continues to deliver strong double-digit growth and strengthen its market position. Premium Personal Care continues to scale well, reaching an annualized revenue run rate of around INR 450 crores. We are witnessing encouraging traction in shampoos category and aspire to achieve near about INR 100 crores of revenue this year. The launch of Parachute Advansed Protein air conditioner further expands our addressable market and complements our broader premiumization agenda. Our digital-first portfolio led by Beardo and Plix continued to deliver strong growth alongside structural improvement in profitability. With an ARR of over INR 1,100 crores, the business has scaled up profitably, exemplifying our digital playbook of combining entrepreneurial brand building with disciplined capital allocation and operating leverage. Our priority is to drive profitable growth in this portfolio. Taken together, these new variant premium businesses are steadily strengthening Marico's growth architecture. As we expand into attractive demand spaces and scale new growth engines with discipline, we are not only diversifying the portfolio, but also enhancing the quality and sustainability of future growth. Moving on to international business. We delivered 15% constant currency growth during the quarter. Bangladesh reported a 4% constant currency growth as the business experienced a transient moderation in growth due to pricing anniversarization and demand softness due to persistent high inflation in the economy. This got further accentuated with a sharp rise in fuel and other energy prices. Through our focused category initiatives, we continue to strengthen our position and sustain market share gains. Vietnam continued its growth trajectory, delivering 27% constant currency growth during the quarter, driven by strong performance across the male and female personal care categories. We structurally transformed the business through investments in innovation, distribution and digital commerce capabilities, particularly the progress of our go-to-market transformation on the likes of S2 in India has enhanced execution quality, strengthened market competitiveness and create a stronger platform for sustainable long-term growth. MENA grew 24% with both Gulf and Egypt performing well. Despite the inflationary pressures and operating challenges in the Gulf region, the business delivered resilient performance driven by strong execution, focused innovation and continued market share gain in key categories. South Africa posted 8% growth led by hair care with our key brands Black Chic, -- just for Kids and ISOPLUS performing well. New country development and export business grew 16%. Summing up, we have delivered a strong all-around performance this quarter, setting a solid foundation for the year ahead. To draw a cricketing parallel in a match where weather interruptions are a possibility, the best teams aim to get off to a strong start, especially in the super -- the powerplay over and stay ahead of the Duckworth-Lewis-Stern. In , we are looking to build momentum early in the year, positioning ourselves stronger to navigate any volatility that may rise later and deliver our full year aspirations with greater confidence. Looking ahead, while global economic challenges persist, we remain optimistic about the consumption trends in India and believe that the strong fundamentals will continue to support economic activity in the country. We will continue to monitor the evolving inflationary conditions and progress of the monsoon. But so far, the government has done a fantastic job insulating consumers from any significant inflation. Some of the international geographies, however, could experience macro headwinds due to the inflationary pressures. However, we are confident in our ability to navigate well through these short-term phases. Despite the global supply chain disruptions, we have maintained strong supply chain assurance through strategic positioning of raw materials, packaging materials and finished goods because of our extreme agility. In the near term, we remain focused on driving top quartile outcomes. The strong start to this year has set us well to achieve our full year aspirations of delivering double-digit revenue growth to cross INR 15,000 crores easily. We are confident of achieving high-teens EBITDA growth and aspire to touch 20% EBITDA growth during this year. We expect India to deliver high single-digit volume growth and international business to deliver mid-teens constant currency growth. We will certainly try and hit another double-digit quarter in India growth sometime in the next 3 quarters. On the cost front, we are witnessing divergent trends. Copra prices have corrected meaningfully. While it has seen some upward bias recently, we expect prices to be range bound at around 25 -- 35% lower -- sorry, 35% lower than the last year's peak levels. On the other side, crude and vegetable oils continue to exhibit an upward bias. And consequently, we expect input costs to be relatively higher in Q2. As we advance towards the Vision 2030 to achieve INR 20,000 crores in revenues with mid-teens EBITDA CAGR, our focus remains clear: strengthen our core franchises, expand into adjacencies where we have a right to win, scale up our digital businesses profitably and further diversify our international growth engine. To anchor the next phase of our growth journey, our EDGE framework, expanding total addressable market and portfolio, enhancing distribution and digitization, growing profitably and creating an empowered organization will serve as a backbone for translating our strategic priorities into measurable outcomes. We are building larger growth engines by strengthening core categories through sustained investments and wider portfolio participation across consumer cohorts, formats and channels. Simultaneously, we are driving a structural shift in our portfolio towards the premium and more profitable categories by taking bigger bolder bets. We're already reaping the benefits of GTM transformation led by our Project SETU in India and now Vietnam. The next leg of our journey will focus on sharpening execution through use of smart analytics, AI and integrated digital ecosystems. Profitable growth is pivotal to our strategy. We're reaping the share of commodity-linked businesses and progressively shifting our portfolio towards categories that are more profitable. As a result, our portfolio is being designed to compound more profitably with stronger unit economics, lower cyclicity and better operating leverage over time. Long-term profitable growth at scale is inherently linked to the depth of organization, quality and capability. We have always focused on building a strong future-ready backbone, anchored in high-quality talent with founders' mentality and owner's mindset and a value-driven frugal culture. As people and technology are increasingly becoming interdependent, we are leveraging AI analytics and automation to improve visibility, speed and decision support while empowering teams to drive accountability collaboration and execution excellence and discipline. With this, I close my remarks and we can take some questions.

[Operator Instructions] The first question if from Abneesh Roy from Nuvama. Please go ahead.

My first question is on plant 14 collagen and ACVs. So we have seen a lot of competition coming here. HOL saw a weak quarter in terms of slower growth in Q1 and they called that this normal routine business things which keep happening. But if I see in your case also Plix did see a reset in terms of slightly lower growth and more focus on margins from Q3. And then when we see competition and pricing, there is a lot of overall pricing war currently, every start-up company and a lot of the Tata, One MD kind of players have also entered. So I wanted to understand in this kind of a very high-growth segment, how is the pricing power? And who will essentially win because here brands are new. And definitely, a lot of the e-commerce company and a lot of the medicine online companies are also present there through their own private labels also.

See, I think let me address this in 2 ways. I think, firstly, I think if you look at our brands, we focus a lot on D2C because D2C ensures that we own the consumer partner him or her in their journey towards wellness. We look at LTV by CAC, return repeat rates, and we believe that they are healthy. Obviously, you can do performance marketing-led spend in a particular channel and grow, but that is not sustainable. In that context, I think both Plix and Cosmix has significantly loyal consumers with good repeat rate, good loyalty and good equity. We also are using other channels to grow. Yes, there is competition. And sometimes -- but sometimes what happens in categories like protein or ACV, it is good to have 2, 3 players who are developing the category because otherwise, the category, it's important to have category investment to convert a fad into a habit. And we believe in both the categories we participate, it's a habit. Having said that, as you know, Plix has also pivoted successfully towards premium personal care, which is plant-based hair and skin food. There's a journey to be had for Cosmix in the VMS space. And therefore, we'll not restrict ourselves to only plant protein and ACV for both these brands. And we are extremely confident of these brands giving sustainable profitable growth. And as you know, Cosmix already when we acquired the brand had a high teens, mid- to high-teens profitable growth.

Sure. My second question is on the almond hair oil INR 100 crore brand by FY '28. That's a very aggressive number. In the past, other hair oil companies have also tried this without much success. So if you could tell us apart from, say, aggressive pricing, what else is needed here because the #1 player in this segment also seems to be doing quite well. So -- and another follow-up will be essentially on what is the status on the 4700 and Cosmix on those new business versus initial benchmark, where are we?

Okay. First, let me finish the 4700 and Cosmic, they are doing well. They are tracking very well in terms of integration. I think right now, Marico offers 2 digital -- unique digital platforms, one on foods, one on premium personal care. And therefore, they are -- I mean, we are in terms of providing synergies, expertise and sharing of best practices amongst all the brands. So it's tracking very well. Both the brands are very strong equity. And I believe they will end the year ahead of what our initial assumptions is. And of course -- and also the fact that we are also mindful of the profitability. Now coming to the almond category. See, in any category, when a market leader makes super normal profit without significant innovation, this makes a case for disruption. And we have proven that with Amla when we started the journey. I think once upon a time, we were 9%, the leader was 78% and then we achieved market leadership. I believe that there is a case for disruption in this category. We have -- I think the last 1 or 2 years, our resource allocation metrics where we focus on fewer, bigger, better, bolder in terms of SETU, which has given us access to distribution has given a case for that we can take a critical market share in this category. Our ability to execute has, I think, reasonably today, it's a machine which is executing this. And therefore, I believe given that the size of the category, INR 100 crores is a fair ambition.

Your next question comes from the line of Mihir Shah with Nomura.

Apologies -- congrats on a great set of numbers. Firstly, on Parachute, copra has again started to go up again. Do you foresee any intervention required in the near or medium term? And given the large price hike that we have taken in 2Q of last year, can you help us understand what level of price decline can be expected in the near term over the next few quarters on Parachute? So that's question number one.

So just when you measure price decline as in MRP price. So I think one of the things as you -- 2 things have happened last year. First, I think we had a 100% increase in input cost prices. We took a 60% hike. So therefore, we didn't pass on the entire cost push to the consumer. And I think it was unprecedented kind of input cost, but Parachute showed significant resilience. I think it was a very bold move. Nowhere in the world, you take a 60% price increase and ensure that you get a slightly positive growth in terms of number of transactions. I think it's unprecedented. I have not seen it happening anywhere, okay? Now coming to this year, we were careful about 2 things. One, I think in the past, we hadn't executed some of the price drops well. So we waited and watched and there, we have taken only some price drops in the -- what I call the loyalty packs. As you know, unlike other categories here, the usage of coconut oil in terms of the lower LSM is high, and therefore, some of the loyalty packs were slightly stressed by the inflation. So we have taken the pricing drops on the loyalty packs, and we hadn't taken in the small packs and the price point packs, okay? And I think the price -- the total hike drop was around 10% price. Around 10%, okay? Now we were clear that we will take only one hike. The other thing which we have done very well, I think, this time is because of significant investment in AI-led demand sensing and forecasting and the entire supply chain, our -- the overall pipeline is very thin. I believe in the entire FMCG category, our distributors are one of the lowest. So therefore, in the past, any price drop used to take what I call 8 weeks or 10 weeks to get affected in the market. This has happened much faster. Secondly, I think what has also changed is that by taking only one price hike and the fact that the other thing which we did last year is smoothening of all trade spends, no month-end spend. So therefore, the pipeline is extremely clear. There are no blockages in the pipeline. So I think that has resulted in significant kind of impact in terms of growth coming back in the larger packs. Now coming to the copra thing, we believe that it will stay range bound with maybe a slight upward bias at this 30%, 35% kind of a level below the peak. And I think we are okay with the kind of pricing interventions we have taken. Obviously, the 10% growth in Parachute was also led also by some supply chain advantages, which we had compared to the small thing, small players. The other thing which we are witnessing, which is also good for us is that some of the larger players in this space are exhibiting more rationality in terms of pricing. So I think with all this I think you will get a decent good volume growth, decent volume growth in Parachute even in the next subsequent one or the quarter range.

Just to clarify, Mihir, what Saugata meant was one price drop. We don't want to take multiple price drops. And given the fact that we'll now be moving into off-season in the next couple of months, we don't see any pricing corrections to happen on the cost side. And therefore, we do not expect any further pricing action from our end.

Understood. I'll take it offline with you later, if that is okay. Secondly, I wanted to check on gross margins on a consol level. Do you see any headwind in gross margins over the next coming quarters? Because I'm unable to triangulate your EBITDA guidance of high teens given that you still will continue to get benefits on Copra. And if you hold on to these margins also, there is a material expansion that can happen on the EBITDA growth front at least. So if you can just help me to triangulate your gross margin and EBITDA growth guidance?

So look at the gross margin, in this quarter, we have expanded by approximately 30 basis points vis-a-vis Q1 FY '26. Now while there are benefits with respect to consumption on the Copra side, but at the same time, we also have to be mindful that with respect to crude-led derivatives on LP and polymers, there is a significant cost. For example, on both these items, the cost increase has been anywhere in the range of 60% to 70%. So it will be a mix of both the gains coming in from the consumption of lower copra prices that we witnessed in quarter 1, but at the same time, higher impact on account of LP polymers as well as edible oil prices. And we have not really passed on the entire hit to the consumer. So just on the guidance side, very difficult to give on gross margin because we believe it will be a little bit of mix of both, but we would try and hold the gross margin percentage as compared to last year. However, on EBITDA margins, again, giving quarter-wise guidance would be a difference -- could be difficult. But on a full year basis, you heard Saugata mentioned that high teens is something which is the base case, and we would try for 20% growth for the full year. And if you do the reverse math and if you see that INR 15,000 crores is something that we should definitely deliver, then the reverse math would suggest that EBITDA margin would expand in the range of about 140 to 150 basis points as compared to last year. I hope this answers your question.

Understood. Got it. No, that's what I was highlighting even after the strong beat on 1Q, you have kept a very conservative guidance on EBITDA growth. So I was just thinking on those lines. Ok I'll come back in the queue.

The only thing which I just want to mention is 20% growth is definitely not conservative by any standard. But yes, that's something which we definitely aspire to deliver.

The next question comes from Harit Kapoor with Investec.

So the first question was on Parachute. You did mention some supply chain benefits. Just if you could kind of deconstruct the 10% volume growth into how much of it would have been led by maybe a mix of, say, grammage increases also that you might have done? How much of it in your view is just competitive advantage because of supply chain? And because we haven't seen these kind of double-digit volume growth in Parachute for a very, very long time. So just wanted to get some more color on this 10% number, that would be very helpful. That's my first question.

I think it's very difficult to allocate a number to each one of them, but I don't think there has been any grammage changes as such. But I think 2 things would have happened. One, as I said, that we selectively took deep price cuts or relatively deeper price cuts in the loyalty packs, which are higher MRP, which resulted in some of the -- as you know, whenever there is a significant price increase, there is titration in use or downgradation. That took care of the downgradation. The second thing is whenever there are supply chain challenges, which is respect to whatever packaging material, which could respect to fuel or anything, obviously, smaller players, they are impacted more compared to us, and therefore, we ensured there are no supply chain challenges. And thirdly, I think we have executed the price drop phenomenally well compared to in the past, whether it respect to pipeline management, whether it scheme management, waiting and watching and taking one price drop. And lastly, as I said, the fourth factor could be that maybe compared to the past, some of the organized competition is a little more rational and focused on not selling below at negative gross margin.

Just to clarify one thing, Harit, if you're referring about the grammage cuts that we had taken in the price point pack last year, which is INR 10 INR 20. Now as the copra prices have deflated, I want to clarify that we have not increased grammage. So this 10% volume growth is the organic volume growth. Having said that, yes, 10% is an aberration. We don't really expect ourselves to keep delivering high single digit or 10% volume growth for the year. We would want to maintain the guidance of mid-single digit for the Parachute. But just to clarify, yes, we have not upped the grammage in the price point pack that we had cut down last year.

The second part was how do I look at the -- so your 11% volume growth for the quarter, is that like a like-to-like number? How do you calculate that number? Because you have had additions in the portfolio over the last 3, 4 months in terms of new acquisitions. So when I look at 11%...

Yes. This is organic... We haven't included 4,700 of Cosmix into the volume growth. the time it comes into the...

Third one was on A&P. Last 2 quarters, the A&P growth have been fairly modest this quarter also, I think 9% growth at a consolidated level. I was just trying to understand with these new acquisitions also coming in, assuming more money is going in, how are we able to kind of maintain level of investment as well as growth? Just some color on that would be helpful.

I mean, sir that we have bought our capital outlay, of course, that does not impact our ability to invest behind the A&P line items. As far as if you look at the overall A&P, of course, we have grown by 25% in this quarter, which is a pretty healthy growth because as I said, of course, we had significant advantage in terms of our cost line items, and we found it appropriate to sort of invest behind both the core and the new products. In India, for example, we launched shampoo, of course, we are in shampoos. So I think yes, we had resources, and we thought it's the right thing to do to invest behind both -- in all the business for that matter, whether it is India, international or digital, and that's why you see about 25% growth in the NPI.

Got it. Last quick one was on tax rate, a little bit lower this quarter. Any change in guidance for the full year at a consolidated level?

Yes. So this year, tax this quarter, it was about 17.5%. I think from a full year perspective, you can take a guidance of about 18% for FY '27 and maybe about 19% to 20% for FY '28.

The next question comes from Nihal Mahesh Jham with HSBC.

Three questions. The first one was on Plix actually. If you look at the growth specifically for the BPC segment, it has been quite spectacular for FY '26. So just wanted more understanding that what would be the hero SKUs in this segment for Plix? And also, how to get comfort on the fact that [indiscernible] you've seen a lot of brands maybe leaving about 1 to 2 D2C brands who sort of saturated close to this INR 500 to 700 kind of range. So what sort of can give us the confidence to believe that Plix will not see that kind of a limitation? And you mentioned that to look at it more as a D2C brand. So that was my first question.

I don't want to get into -- I think Plix has pivoted a lot to hair and skin food. And obviously, there are some hero SKUs where 2, 3 capabilities are basically ability to spot a trend and rider trend. So therefore, there's a very good innovation engine. They have a very good digital marketing engine, especially in both the influencer and content, which is a source of competitive advantage. And having a strong AOV in our D2C business and the fact that the D2C part of the component being strong and profitable gives the edge. Now coming to the kind of -- you are right that, obviously,Plix at INR 800 crores is not going to grow 30%, 40%. And also, we are not just chasing growth. We are also ensuring that this brand also is profitable. Having said that, at this level, I'm sure there is an opportunity for the brand to get into a little bit into modern trade, it get into beauty outlets. And of course, given the wide spectrum, it's not a single category brand, there are legs to grow.

Understood. That's very clear. Two quick clarifications on Parachute. We had mentioned about taking a 10% price cut in Q4 in the non-grammage packs. So that has been the only price cut we've taken for Parachute. Is that understanding right?

Exactly.

And just one last thing. Foods has obviously grown 43%, but this includes obviously cross mix and INR 4,700 also coming in. So ex of that, what would be the growth in the Foods portfolio?