Recovery in H2FY14; low volume growth impacted Q2: Marico

Marico sees an improvement in its performance going forward. The company reported a 23 percent rise in its net profits, but revenues saw a dip. Milind Sarwate, its Group CFO tells CNBC-TV18 that the volume growth has been the dampener in the quarter. He attributes the growth in margins by 200 bps to less advertisement expenditure and no product launches in the quarter.

Also read: Marico Q2 net up 23%, margin expands but revenues slip

Below is the edited transcript of his interview to CNBC-TV18.

Q: Your top-line growth has disappointed this quarter. Could you break that up in volume and value terms? Has the trend of sluggish volume growth actually reversed? Are you seeing volume pressures persisting in this quarter as well?

A: We have had a pretty good earnings growth of 25 percent, but the value growth has been low at 5 percent. Within that, the volume growth has been low at 4 percent both in India and overseas.

There is a distinct impact of the slowdown especially in the urban areas, because our rural growth still continues to clock 12-13 percent. The volume growth has been a primary dampener in this quarter.

Q: You have managed to grow your margins by about 200 bps and cost pressures for you have intensified both on a Quarter-on-Quarter and on a Year-on-Year basis. Can you elaborate how you were able to achieve this growth? Where are we seeing the internal margins come off?

A: The gross margin has remained more or less flat; maybe 1 or 2 bps down. We were able to manage the raw material cost better. We also managed our advertising and sales promotion better as there were not many new product launches in this particular quarter.

We saved about 200 bps in advertising and sales promotion (ASP) and about 190 bps in raw materials and when you net off some of the incremental costs we have gone up by about 210 bps in margins.

So, we are at 15.1 percent which is a pretty good number given the fact that our volume growth has been lower than what we anticipated and lower than what the market was expecting from us.

Q: Your ad spends have come off quite substantially in this quarter. Is that the trend that we can look forward to in the second half of FY14? I ask this question because of so much commentary coming in from some of your peers where they speak about intensifying competitive features. Is that the number that we can look at for the balance part?

A: We always maintained that the right way to compare ad spends is to take a moving annual total, because that helps us in smoothening out the Quarter-to-Quarter fluctuations due to new products or seasonality in advertising.

We have always ranged recently between 12-14 percent of sales for ASP. We will stay within that range. This quarter's lower ASP need not necessarily be taken as a guide for the future.

Q: Your revenues have dipped by about 3.5 percent this time. Do you still maintain the 25 percent top-line growth guidance you set out at the start of the year?

A: I think so. In terms of our basic building blocks, we are in the right space. Yes, lower volume growth is something which has impacted, but we hope that we have hit the bottom of the trough and we would recover from the coming quarter onwards.

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