FMCG giant Marico expects moderation in food inflation to revive urban consumption
FMCG major Marico is looking for double-digit growth in the second half of FY25 and expects the prevailing high food inflation to moderate in the next two quarters, which will help revive urban consumption, its MD & CEO Saugata Gupta said.
The company, which has already gone for a price hike for its Saffola range, expects a similar action from other FMCG players as prices of raw materials such as coffee, cocoa, and palm oil have gone up.
"In the sector, there will be some price increases. If you look at some other input costs for other players, there has been a globally significant increase in the prices of coffee, and cocoa, So there is a little bit of inflation situation and now you are seeing a significant increase in palm oil prices."
"So across the sector, there will be some price increase," Gupta told PTI.
However, he also pointed out that most of the big-scale FMCG manufacturers would try to absorb a portion of the increase in commodity prices through various cost management initiatives and extend a small part of the burden, as volume growth also matters.
"I think it will be smart to absorb some of these costs and (pass on) only a part to the consumer, given the demand situation, because at the end of the day, volume, growth and market share are far more important in the short and medium and long term," he said, adding, "margins always come back for scale players."
Besides, another driver of the input costs is crude oil, and Gupta does not expect any major volatility in the near-term there.
Regarding Marico – the maker of Saffola and Parachute – Gupta said he is hopeful of improving sequential volume growth a bit in the second half of the ongoing fiscal year.
However, he added, "There are challenges in terms of input costs, which could cause margins to lag a little behind revenue growth." The biggest concern right now is food inflation.
"We expect that to hopefully moderate over the next two quarters, and then urban growth is expected to recover because it has been impacted a little bit by the high food inflation that is prevailing," he said.
Marico, which reported a 7.6% increase in consolidated revenue to Rs 2,664 crore for the September quarter, along with a 20.2% rise in PAT, is witnessing sequential volume improvement.
"Our revenue growth is also in high single digits, and we are fairly confident about revenue moving into double digits in the second half of the year," he said.
There would be some "headwinds," but there is a recovery from rural markets, helped by MSP, good monsoons, and the government's increased spending in those areas.
Moreover, some of its products today, especially Marico's digital brands and food segment, operate at the "slightly more top-end," where they are not seeing any consumption stress, he said.
"So, we are pretty hopeful of trying to improve that sequential volume growth a little bit in the second half of the year. There are challenges in terms of input costs," which will cause a lag in margins, he added.
Asked about any possible hike in prices for its coconut oil brand Parachute, as copra prices have gone up again, Gupta said, "Wherever there has been a significant increase in inflation, especially copra, where we operate with Parachute, we have historically done well in inflationary conditions because we compete with a lot of smaller players."
"Our historic track record on inflation has been much better than during deflation," he added.
On copra inflation, Gupta said he thinks the government wants to protect farmers but that a balance between food inflation and that will come.
"So I think some of the factors contributing to food inflation will cool down. Though current prices are far higher, we expect them to cool down," he said.
"For us, growth is important. We are very confident of delivering double-digit growth in the second half of the year," he said.
Currently, premium and food products contribute to 21% of Marico's revenue, and Gupta expects it to rise to around 30% over the next five years.
