We expect improvement in FMCG demand in the coming quarters: Pawan Agrawal, Marico

Fast-moving consumer goods (FMCG) company Marico had announced a nearly 9% rise in net profit and posted around 7% rise in revenue from operations in its April-June quarter (Q1 FY25) results. Buoyed by the first quarter financial performance, Marico says it is now focusing on diversifying and premiumising its business in India.

In an interaction with ET Digital, Farmer AgrawalMarico Limited’s CFO says it is poised to take advantage of the anticipated uptick in consumption in rural and mass areas. The company is focusing on direct distribution and data-driven insights to drive growth. Agarwal also says they expect a recovery in consumption in urban and rural areas as the festival season approaches. Edited excerpts:

The Economic Times (ET): How is Marico addressing pricing strategies across its categories amid the current market dynamics and inflationary trends?
Pawan Agrawal (Pennsylvania): With retail inflation subdued and macroeconomic factors improving, we are poised to capitalize on the anticipated uptick in rural and mass category consumption, focusing on direct distribution and data-driven insights to drive growth. In Q1FY25, our domestic revenues were Rs 1,962 crore, up 7% YoY, driven by 4% volume growth and a favourable turn in the pricing cycle. We have taken pricing measures across one of the core portfolios and future pricing measures will depend on the trajectory displayed by key commodities. We would leverage the pricing power of our key franchises judiciously to ease any pressure on input costs during the year.

ET: Given concerns about food inflation, how does Marico plan to sustain volume growth in the coming quarters?
PENNSYLVANIA: We expect the gradually improving trends in FMCG demand to continue in the coming quarters driven by stable retail inflation, a healthy monsoon season and government budgetary allocations to boost the rural economy.

Against a backdrop of improving macroeconomic indicators, we expect a gradual pickup in growth of our core categories in the domestic business through investments in brand development, aided by ongoing initiatives to improve the profitability of our general trade (GT) channel partners and the transformational expansion of our direct reach footprint under Project SETU. We will also continue to aggressively diversify the portfolio by expanding the premium food and personal care portfolios, while improving profitability parameters in line with our medium-term strategic priorities.

ET: Marico’s flagship brand, Parachute coconut oilwhich accounts for 34% of the company’s domestic revenue, recorded modest growth of 2% in volume and 6% in value. Similarly, Edible oils from saffolawhich accounts for 16% of national revenues, recorded mid-single-digit volume growth. How do you view this?
PENNSYLVANIA: Parachute coconut oil occupies a dominant leadership position in the market and has opportunities to capture the transitioning market from unbranded products. We expect an uptick in both volume and franchise value growth in the coming quarters, given the visibly encouraging trends in market share, penetration and purchases. We also expect stable trends in Saffola edible oils with stability in input and consumer prices. ET: The company said in its first-quarter results that it aims to achieve a double-digit EBITDA margin in its brands that prioritize digital for fiscal year 27. What is the strategy?
PENNSYLVANIA: The profitable expansion of digital brands is one of our strategic priorities that allows portfolio diversification in the India business. At the current scale, we have built one of the most profitable digital consumer businesses. This portfolio clocked an exit ARR of nearly Rs 450 crore in FY24 in terms of net realisation. Beardo has scaled up to about 3x since FY21 and achieved positive EBITDA in FY24. We will look to take Beardo to double digit EBITDA margin in FY25. We will look to replicate Beardo’s playbook as we scale digital franchises and achieve double digit EBITDA margin across the portfolio in FY27. Both Plix and Just Herbs have been scaling with minimal cash burn. Considering the growth trajectory and business drivers, we believe both Beardo and Plix have the potential to reach Rs 500 crore each in turnover in 4-5 years.

With multiple digital brands under our umbrella, we are working to leverage synergies across brands, leveraging common supply chain, common technology stack, and first-party data for cross-selling. Our goal is to become the best in cost-effectively scaling digital consumer brands.

ET: As Marico continues to expand its food and digital brands, what are the key priorities for the company in terms of improving profitability and sustaining growth in the medium term?
PENNSYLVANIA: We continue to drive steady progress toward our key strategic objectives across our 4D framework (diversification, distribution, digital and diversity) to achieve sustainable and profitable growth.

Over the medium term, we aim to achieve double-digit revenue growth through consistent outperformance in category earnings and market share across domestic core portfolios, accelerated growth in premium food and personal care (including digital brands) and double-digit constant currency growth in the international business. We expect operating margin to increase modestly over the next few years on the back of benefits from leverage, improved margins in food and digital businesses as well as premiumisation of portfolios in India and overseas.

ET: How does Marico plan to leverage this success to further diversify and strengthen its overall brand portfolio?
PENNSYLVANIA: We are actively driving diversification across both domestic and international businesses in order to build long-term growth drivers and insulate the business from geographic and category concentration risk as well as reduce commodity lock-in. We have made steady progress in our portfolio diversification journey in the India business, with the composite share of premium food and personal care (including digital brands) in domestic revenue reaching nearly 20% in FY24, up from 11% in FY22. We will continue to aggressively diversify the portfolio. At the same time, we continue to drive efficiency as we are committed to building sustainable and profitable businesses. Accordingly, we expected the domestic revenue share of premium food and personal care portfolios to increase to nearly 25% by FY27.

In the international business, we remain committed to investing aggressively to diversify our portfolio through innovation and expansion of the total addressable market across all markets. In Bangladesh, scaling up new franchises in shampoos, skincare and baby care has led to reduced revenue dependence on core portfolios. Over the past few years, we have witnessed strong growth in MENA through expansion of the hair oils portfolio in the region as well as healthy traction in the hair care and healthcare portfolios in South Africa. In Vietnam too, expansion into feminine personal care has created new growth levers for the business.

ET: What is your perspective on rural and urban demand?
PENNSYLVANIA: We are optimistic about a gradual recovery in rural growth. Growth in rural areas has outpaced urban growth in the last two quarters. With inflation largely under control, we expect rural growth to gradually pick up. We are seeing some first green shoots. We are witnessing a general trend of consumers preferring branded products and moving to larger brands, which is an aspirational shift.

The Union Budget’s emphasis on boosting rural consumption is also a driving factor. We also see huge potential in packaged foods, where we expect growth to come from semi-urban and urban areas. As we approach the festive season, we expect a recovery in consumption in urban and rural areas, while remaining committed to responsible and agile market practices that deliver maximum impact and value.