Suhani Adilabadkar
Marico reported its Q3FY25 quarterly update on January 3, 2025 after trading hours. The stock price touched a high of Rss 667 on January 6, 2024 before the market crashed due to HMPV fears. As per the Marico quarterly update, the FMCG sector witnessed steady demand trends on the back of improving rural consumption and stable sentiment in urban areas compared to the preceding September Quarter 2024. The company has three major products, Parachute coconut oil, Saffola edible oils and value added hair oils. Parachute Coconut Oil moderated in volume terms on a sequential basis and reported low teen revenue growth in Q3FY25. Saffola Oils posted high teen revenue growth and Value Added Hair Oils declined marginally owing to competitive headwinds.
In revenue terms, the quarterly update is positive as the company delivered mid-teen revenue growth YoY and is on course to meet the double-digit growth aspiration on a full year basis.
But rising trend in vegetable oil prices and high copra prices is expected to result in a higher-than-anticipated gross margin contraction YoY. Copra (dried coconut kernel), crude edible oils, liquid paraffin and HDPE are major raw materials for Marico. While copra is a major raw material for Parachute Coconut Oil category, edible oils soyabean, sunflower, rice bran are mainly utilized for manufacturing Saffola oils. Copra prices have risen due to higher demand, coconut crop shortage and stocking up by traders to inflate prices. Coconuts are widely used in religious and festive occasions in India and also in various industries for instance in manufacturing mattresses, food & beverages, surfactants and hair & personal care.
In FY24, the price of domestic copra was up by just 3% and in Q2FY25, copra prices jumped 25% YoY. In December 2024, government increased minimum support prices (MSP) for copra by Rs 422 per quintal for milling copra and Rs 100 for ball copra. MSP for milling and ball copra stands at Rs 11582 per quintal and Rs 12100 per quintal for the marketing season 2025. While milling copra is used for oil extraction, ball copra is used for religious purposes. Thus Marico, raw material cost for Parachute Coconut Oil category has increased in FY25 with rise in price for milling copra. While Marico has taken price increases by the end of Q3FY25, margins will be impacted as the company favours its customer franchise expansion.
Saffola oil category is facing headwinds due to increase in import duty on various crude edible oils such as sunflower, soybean and palm oils. Custom duty on crude soybean, crude palm oil and crude sunflower oil has been increased from nil to 20%. And basic custom duty on refined palm oils, refined sunflower oil and refined soyabean oil has been increased from 12.5% to 32.5%. India imports nearly 60% of its edible oil consumption. With the rise in import duty, the domestic edible oil market is witnessing high prices, increasing input costs for FMCG, packaged foods, hospitality and other ancillary industries dependent on edible oil consumption. Thus Marico is witnessing a rise in the cost of raw materials whether its copra or crude edible oil. In addition to this, crude oil is also mildly inching up which will also impact margins adversely as liquid paraffin and HDPE, both used for food packaging are crude derivatives.
