Marico Ltd. Earnings Call Nuggets: Saffola Analysis and Youth Brands

Marico Ltd. recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Saffola Analysis

Unidentified Analyst – SBI Infoline: Hi Sir, congrats on a good set of numbers. Sir my question is on Saffola, basically two sub question is there. One is – it’s a 10% volume growth, how much of it would be attribute to some promotions in the terms in the sense of extra volume or something like that? And second question is you have lost some market share there, so what is the reason for that market share loss and do you think that you can recover it and, and if so what are the steps taken for that pick up?

Saugata Gupta – CEO – Consumer Products Business: In terms of Saffola promoted volumes, there was no significant difference between the promoted volumes of the last quarter, I mean in the previous year quarter one quarter. So, the promoted quantities remain the same. Yes, we have lost a little bit of market share, but as I said that this is in Saffola premium ROCP, however we believe that we would be able to maintain Saffola market share in that kind of a range of a 57% to 58%. Having said that, I think what is more important is to ensure that the super-premium ROCP category as a category growth, as you know that given the little bit of an economic slowdown and the fact that this is a little bit of top-end, there would be certain challenges in the growth. Having said that, we are pretty confident about maintaining double digit growth of Saffola this year.

Unidentified Analyst – SBI Infoline: And also another thing I wanted to know is on copra prices it is up some 8% to 10% y-o-y and correct me if I am wrong your pricing versus y-o-y on Parachute I mean there is no significant change the price would be more or less same on a y-o-y basis so how has the margin expansion come out there?

Milind Sarwate – Group CFO: You have to look at your – obviously it’s based on consumption and not based on actual market prices for input cost. So that would have been the reason and as far as parachute pricing is concerned if you look at quarter versus quarter there would be some reduction of around 3.5% in average pricing of Parachute…

Unidentified Analyst – SBI Infoline: No, I am saying y-o-y so Q1 FY ’13 versus Q1 FY ’14?

Milind Sarwate – Group CFO: There is 3.5% reduction in the pricing of Parachute.

Unidentified Analyst – SBI Infoline: So the prices have come down the commodity has gone up, but yet on a y-o-y basis the margins have expanded.

Milind Sarwate – Group CFO: Obviously as I said that it is on basis of as a company we take some strategic position and that basis is on the consumption and not basis of actual prices in the market.

Unidentified Analyst – SBI Infoline: So in which case this gross margin expansion that we have seen should we say that it is probably short lived or not going to be sustainable?

Milind Sarwate – Group CFO: I think the gross margin position is something which as I said there would be certain input costs which we’ll perhaps in the second half of the year could slightly higher. Having said that as I said we will ensure that we maximize volume growth and maintain margins which is on a sustainable basis.

Unidentified Analyst – SBI Infoline: Sir, my last question is on the other hair oil portfolio to congratulate you guys, you have done very well over last year. Having said that, 9ym being a little greedy here, your volume growth is 16%, which has fallen I mean if you see the trajectory over last two, three quarters, it has fallen, it used to be 20% plus. So, do we see that falling trajectory being arrested at 16% or could it like slide further down?

Saugata Gupta – CEO – Consumer Products Business: We have given a broad indication that we will continue to grow in the range of 15% to 18% in the over the next coming quarters and we will maintain that. Now, obviously there could be a couple of quarter, I mean there could be a blip in a quarter here or there but 15% to 18% kind of a volume growth rate is imminently achievable over the next upcoming quarters…

Unidentified Analyst – SBI Infoline: And you’re maintaining that in spite of whatever macroeconomic slowdown et cetera there might be?

Saugata Gupta – CEO – Consumer Products Business: The way to look at it is that as an organization it is important for us to and realize that we must continue to the exhibit volume growth in spite of the macroeconomic condition. I think that’s the challenge for any management. Having said that, as I said that I think we’re seeing very significant double-digit growth across all the categories. I would say going forward in the coming year, I think our 10% volume growth is something which is imminently achievable in the overall FMCG business with India business doing a 9% to 10% and international business perhaps doing a tad over 10%.


Youth Brands

Abneesh Roy – Edelweiss: My first question is on the youth brands, you have said that finally market share loss seems to be have been rested, but if I see the advertising there is no difference in terms of positioning of most of them except one or two players. So, what gives us the confidence that finally we have cracked this apart from say the distribution synergy or the new – at in terms of sustainable market improvement, what is the confidence you are getting in the deodorant specialty?

Saugata Gupta – CEO – Consumer Products Business: I think it’s a combination of all three. I would perhaps beg to differ with you little because our advertising positioning as far as Zatak is concerned. It is a new advertising positioning which is completely differentiated from the rest of the pack. As far as the Set Wet is concerned, also it is a little differentiated and there are certain finer nuances. But I think what is driving the growth are three things. One is a continuous innovation. If you notice, we have come up with a lot of new variants I the Set Wet portfolio. We have come out with a new pack which is priced at a lower price point which is a smaller pack, and finally, I think we have also revitalized the entire Zatak portfolio. Distribution is another area where we have I think started our journey of expanding distribution. I strongly feel over the next few years there will be consolidation as far as the deo market is concerned between organized players, because at the end of the day, yes there maybe 150 to 200 players, but the power of distribution and the power of disciplined reach and selling will obviously play in terms of over there in the long-term. So, we are extremely confident that over the long-term the organized players will consolidate their market share…

Abneesh Roy – Edelweiss: Sir, my second question is on your new business. Skin lotion, the market leaders is saying there is a huge slowdown, so what’s your take on the industry. Second is, sir oats, our market share seems to be stagnating and the second new entrant there in this quarter con call said that they have gained market share, so – and so if you got to share insights on oats market share, where do you see it stabilizing from a longer perspective and how is muesli done, sir?

Saugata Gupta – CEO – Consumer Products Business: So, let me address the body lotion first. Yes, as far as the skin care category is concerned, there has been a little bit of a slowdown. Having said that in Quarter one, even then there was a 20% plus growth in the category and off-take terms. There has been a little bit of slowdown especially in the urban and modern trade, but given the category penetration we see huge opportunities in Middle India and that opportunity will propel the category having said that, the kind of growth that you perhaps would have seen in the category in the past two years there could be certain moderation in that category. In spite of the competitive pressures with three or four players in the fray, maintaining a 13% and 14% market share we intend to continue to be number 2 and our focus will be more on a differentiated part of the portfolio namely the Masala Oats which is where innovation plays a big role rather than the commodity part of the oats. So if you see I think these two we expect to continue to grow in a certain manner and be on track. So far it’s on track but having said that the growth rate that was there in the preceding two years for both the categories has been lower this year at least in May, April, June and significant portion of that slowdown has happened in the more urban and little bit in modern trade. In oats we have actually gained share — in value share of around 2%.

Abneesh Roy – Edelweiss: And museli.

Saugata Gupta – CEO – Consumer Products Business: Museli is a small category — the category is still small. So we have not supported the brand. We are around 8% to 10% in market share but it is something we will, we have taken a conscious choice first to grow the Masala Oats into critical, because in food as you know that scale is very important factor.

Abneesh Roy – Edelweiss: My last question and a small follow-up sales in modern trade I couldn’t understand 29% growth seems very high and if I see a category growth Saffola 6%, hair 19% versus 29% in modern trade obviously youth might be helping so is there an inorganic element of youth?

Saugata Gupta – CEO – Consumer Products Business: Significant portion of youth, as you know that Paras and obviously during the intermediate transition Reckitt Benckiser Paras historically has not been strong in that segment. So, therefore that has and I think the modern trade also the food portfolio continues to grow aggressively in modern trade.