Marico declines 4% on profit-booking post June quarter business update

The manufacturing of parachute & value-added hair oils was significantly impacted by lockdown with billing only resuming in the latter part of April.

Shares of Marico slipped 4 per cent to Rs 344 in intra-day trade on the BSE on Monday on profit-booking after the company said it has seen a 13-15 per cent decline in revenues for the quarter ended June 2020 (Q1FY20-21). The Q1 contributes 31 per cent to revenues.

In an update on quarterly performance, Marico said with the Q1 top-line translating into a single-digit growth over the annual run rate of FY20, the company expects to bounce back to posting volume and value growth during the rest of the year.

The manufacturing of parachute and value-added hair oils (VAHO) was significantly impacted by lockdown with billing only resuming in the latter part of April. However, Saffola edible oil and food portfolio witnessed a strong growth owing to the increased in-home consumption. There were visible signs of down-trading in VAHO portfolio. Operating margins are likely to improve given lower commodity cost, cost-cutting measure and considerable cut in A&P spend, it said.

The brokerage firm ICICI Securities believes the impact of lockdown was limited to Q1 and manufacturing and supply chain operations will be completely normal in Q2FY21. However, the company was struggling with demand conditions in the parachute and VAHO segment even before the lockdown, which would continue to impact growth, going forward, it said.

“Marico remains cautiously optimistic about the future as it unfolds. While the business environment and consumer sentiment remain volatile, the company is well-positioned to withstand these challenging times through innovation, agile execution, aggressive cost management, and its portfolio of trusted brands,” Motilal Oswal Securities said in a company update.

The company has a more resilient portfolio of products than peers to withstand the Covid-19-led sales and earnings decline in FY21. Furthermore, the outlook on material costs is also better than the earlier expectation of possible inflation. However, the longer-term growth trajectory and eventual re-rating would be determined by the success of its new products(an area in which it has seen limited success so far), the brokerage firm said.

Despite today’s fall, in the past six months, Marico has outperformed the market by gaining 6 per cent, as compared to a 10 per cent decline in the S&P BSE Sensex.

At 02:15 pm, the stock was trading 2 per cent lower at Rs 351 on the BSE, against a 1.4 per cent rise in the benchmark index. A combined 6.4 million equity shares changed hands on the counter on the NSE and BSE so far.