Demand has been resilient despite rising commodity prices. Why is that so?
Compared to the rest of the emerging markets, the Indian consumer is fairly insulated. If you look at sector earnings, growth in volumes looks good although one needs to look at also a two-year CAGR (compound annual growth rate). Last year, when GST (goods and services tax) rates were rationalised, it gave a fillip to the growth of the sector (fast-moving consumer goods) and later that was affected by the crisis in West Asia. Having said that, I think the Indian economy and the consumption have been reasonably resilient. However, we are watchful of two things. One is that prices of crude oil continue to remain high, and the second is that there has been deficient rain in some parts of the country. Every year or so there have been black swan events and coping with adversity is baked into our way of running the business. We have seen stronger organisations have coped better, and they continue to perform well.
Then how do you remain positive on growth in volumes?
We have multiple vectors of growth. Last year we faced unprecedented increases in input cost, including a 100 per cent increase in copra prices, and a 60 per cent price increase for Parachute. Consequently, we are now benefiting from the subsequent 35 per cent dip. We have launched shampoo and almond oil. And lastly, we have consistently invested in brands, advertising & promotion, talent, and capabilities.
What is your strategy for acquisition in India and international markets?
We are a strategic partner of choice for many founders today, and we have a proven model in the digital-first business. We have enough on our plate and will pursue acquisition selectively. Having done significant work over the past few years, we have ample growth opportunities. Should there be an opportunity in adjacency, we don’t look at it solely for market return. We look for a “right to win”. Our digital playbook is largely in place.
In international markets, we pursue acquisition that strategically adds value. We believe that organic growth is the first step to acquisition. It can’t be an escape button for a lack of organic growth. There is enough innovation in international markets. Our focus is replicating our digital model in markets with developed ecommerce and social commerce, such as Vietnam or parts of West Asia.
When do you expect a recovery in volumes of edible oil?
This is a deliberate reset. We are deselecting the lower margin part of the business. This reset will take two to three quarters. After that, we expect to see strong, profitable growth. We are also investing in cold pressed oils, similar to the protein trend which is established in Western markets. We believe that we are a significant player in the cold pressed-oil market.
Do you expect the strong performance in the food business to continue?
We have been delivering over 40 per cent growth. First, we expect consistent double-digit organic growth. We remain number one and profitable in oats and masala oats, while other food categories, including honey and soya, are gaining traction. Protein is a big bet for us, and we are participating in this category with four brands in the food segment.
Second, the True Elements integration has gone well, and the two recent acquisitions, Cosmix and 4700 BC, are ahead of assumptions. Therefore, 20-25 per cent growth in the food business this year is a realistic expectation.
How do you plan to maintain your performance in international markets?
We have focused on the organic business and avoided spreading our resources too thin in Africa and Latin America. Our strategy involves three pillars: One is reducing our dependence on Bangladesh and growing other markets; the second is continuing to invest behind brands and innovation; and the third is to reduce our dependence on Parachute within Bangladesh. Specifically for the second half of the year, we expect sequential growth in Bangladesh to improve, ensuring the overall international business delivers growth.
Which are the new segments Marico is looking to enter?
We anticipate further expansion within the food segment, but for other core areas, we are largely set. We’ll focus our energies on accelerating our growth in the shampoo and almond oil categories.
Marico’s advertising and promotion spend has been higher. Will this continue?
This is a one-time reset because we believe in doing business the right way. We have achieved significant savings in cost, including in BTL through SETU. Moving forward, A&P will settle back into more like a teens growth, in line with our revenue aspirations.
The margin outlook has been maintained to be in the mid-twenties, how will you manage it?
Since Copra constitutes nearly 50 per cent of our input costs, we are benefiting from its 35 per cent decline. Secondly, our actual consumption costs are different from the spot costs due to our agility and our efficiency in our procurement and ability to take calls at the right moment. As strong brands, we also have the ability to pass on some price increases if necessary. We have an aggressive, institutionalised cost management program in the organisation, that ensures margin protection. Lastly, the diversified part of the business, specifically foods and digital-first business, is accelerating and witnessing a significant improvement in profitability due to cost synergies.
Other than Parachute, will you take price hikes on the other parts of the portfolio?
For Parachute, we have implemented a price drop. This quarter, there is a 12 per cent deflation built in. Following the government’s duty reduction, we took a price drop in late September. There could be a marginal price increase for the value-added hair oil portfolio and some part of the crude portfolio if crude remains at these high levels.
