After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
Homegrown consumer goods company Marico posted a disappointing set of numbers primarily due to the onset of the Goods and Services Tax (GST) which resulted in retailers going slow in stocking their shelves.
Net sales fell 3.7 percent to Rs 1,715 crore in the first quarter from Rs 1,781 crore in the same period last year. Net profit was down 11.9 percent to Rs 235 crore while EBIDTA dropped 4 percent to Rs 343.64 crore even as the company cut advertising and promotion expenses “amidst environmental uncertainty”.
The company did point out that advertising and promotion expenses would rise to a more sustainable 11 to 12 percent of sales in future quarters.
While Marico’s lower numbers in the first quarter of FY18 were not unlike its competitors, the stock reacted negatively as the company posted a 9 percent decline in volumes, which was far worse than anticipated and worse than what its competitors had posted in the quarter. The stock slid 6 percent soon after the results were announced. It ended the day at Rs 326.20 a piece, down 2.2 percent from previous close.
At 9 percent, the volume decline was uniform across Marico’s two largest categories Parachute hair oil and Saffola edible oil. In premium categories that Marico operates in, the decline was higher. For instance, sales in the male grooming portfolio declined 23 percent in value terms. Premium hair nourishment products were down 25 percent in value terms.
Still, it would be fair to say the worst is probably behind Marico. Marico says it expects the decline in sales to be transitory as the market transitions to GST. A good monsoon would also help the company sell more across rural India where consumers depend on the agricultural economy for their earnings and livelihood. Saugata Gupta, CEO, Marico acknowledged, “…The operating performance for the quarter was below par…. We believe that GST will help organized players in the long run.”