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Problems > Solutions

Consensus (including us) has four expectations from Marico – (1) drive market share gains led volume growth in coconut oil portfolio, (2) consistency in the performance of VAHO (value added hair oil) with expansion into premium segment, (3) drive penetration-led volume growth in Saffola edible oil, and (4) continued revenue momentum in Foods (to provide comfort on the expansion of Saffola franchise). While Marico has been consistently taking steps (proactive pricing actions, launch of premium VAHO) towards delivering these expectations, macro headwinds (commodity prices volatility, rural slowdown etc.) have led to undesirable outcomes in the near term for core segments. There are lingering questions about structural growth deceleration for hair oil too (as observed in performance of all hair oil players).

We believe improvement of operating environment is important as it may provide enabling conditions for Marico’s expansion into new segments (Foods and premium VAHO). Marico should also start seeing the benefits of distribution expansion in both urban (chemist channel) and rural regions. Healthy foods and digital-first brands’ portfolios continue to trend well and are likely to provide another leg to growth). We continue to believe that Marico's leadership which has a strong track record of outperformance will find solutions in long term. ADD

* Macro headwinds weigh on PCNO volume growth: Volume growth for coconut oil is largely driven through conversion from unorganised (loose segment) (~30% of overall market) to organized (packaged). Marico being the market leader with ~62% market share in organised segment also has to gain market share from unorganised players. However, conversion from loose to organised requires a) favourable demand environment, especially in rural India and b) stability in input prices (copra) - unorganised players are able to react (pricing actions) faster than organised players (it takes 6-8 weeks for MRCO’s pricing interventions to translate in the market place).

* Rural demand has been under stress in the last few months due to significant inflation. Real rural wage growth continues to be under pressure hurting rural demand. There are expectations of rural demand recovery but any result is yet to be seen. Sustained real rural wage growth and easing off of inflation is required for favourable demand environment.

* Any overshooting (inflationary/deflationary) in copra prices (vs expectations) constricts MRCO’s ability to gain volume market share in PCNO, as it takes longer (6-8 weeks) for the company to translate pricing-actions at the market place compared to un-organized players. Hence, during the month of Sept’22, Oct’22 and Nov’22, higher than expected deflation in copra price impacted loose to branded conversion in PCNO. However, revival in volume growth (and market share gains from loose) during Dec’22 due to right-pricing and favourable firming-up of copra prices is comforting. However, while copra prices are expected to be range bound in near term, macro slowdown may impact volume growth in the category.

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