Marico ($MRCO)

o Soft Q2 demand trends. Marico noted moderation in volume growth rate sequentially in Q2 owing to slower consumption growth in rural. FY20 volume growth is lower at 6% than mid-year growth outlook of 8-10%. Smaller packs growth is higher implying lower outlay for consumers.

o Competitive Landscape. Competition has intensified over the past two years particularly in the economy hair oil segment with faster growth for LUPs. Market share gains however continue for Marico in CNO (Parachute) and hair oil categories. Growth opportunity in economy segment is significant considering the uptrading potential from loose hair oils.

o Innovation/Portfolio diversification efforts remain in focus. Nearly one-third of marketing spends are related to new portfolio. Significant part of new portfolio is available only in the modern trade & E-Commerce channels (eg Saffola Fitiffy, Premium hair nourishment etc). In the hair care segment Marico is participating across the economy segment via LUPs (Nihar Sarson, Nihar Amla), mid end (Jasmine, Nihar Naturals) and high end (Parachute Advansed Aloe Vera, Hair & Care, True Roots, Crème Oil). Serums (Livon, Silk n Shine) is an exciting category for Marico with sachet offering doing well and more variants being introduced.

o Comfort on margins stays. Marico would benefit from copra price deflation (15-20% lower prices) in FY20, expecting 150bps+ EBITDA margin improvement in FY20. A&P spends will step up by 100bps+.

o Distribution dynamics. Conscious choice to invest in modern trade (12-13% of India sales) and E-Commerce (4% of India sales) with dedicated support and ensuring relevant product/price packs for these distribution channels. Focus on ensuring these channels deliver better margins vs general trade owing to better mix. Prototyping a new distribution model in urban India to improve efficiency and reach in general trade.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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