Marico Limited — Q1 FY26 earnings call

Yes, of course there has been some cut in India ASP, but let me just tell you two three broad counters for that. #1, we have not cut in the focus categories of premium, VAHO, Foods and PPC. So, in these categories we have invested adequately. Also, Saugata touched upon the fact that we have ensured that our share of voice is higher than our share of market in focus categories. Secondly in BOP of VAHO we have definitely cut down due to competitive activity at the trade and therefore we have rationalized ATL spends towards consumer beneficial pricing in that segment. Additionally, I think in this quarter we have cut down lot of non-media spends, like we have rationalized the frequency of Nielsen subscription data, we have deferred some of the new film shoots which was discretionary and hence reduction in utilization of celebrity time cost. And additionally, we also extracted lot of inefficiency out of media and non-media spends and hence getting more bang for the buck for the same dollar spent. So, these are some of the reasons because of which you see the A&P spends going down a little. But going ahead, we believe that A&P will trend upwards in India business. And of course, at a consol level, we continue to invest behind all the focus categories and new parts of the business.

Analyst questioned the significant drop in India ad spend, and management clarified the strategic rationale behind cuts in non-media and non-focus categories while maintaining media spends in core areas.

Asked by Vivek Maheshwari

No. So, I think there are two things. One is, obviously, we will take steps now and I cannot get into details of what are the steps we will take to ensure that protecting some of the packs which are much more sensitive to pricing. We are taking steps. Secondly, as I told you, is that during such times the small players are really stretched in terms of their presence. Also some of our branded large competitors who have been doing unreasonable kind of pricing, which was lost last year I think will not do that. So, I think there will be market share gains. So, combination of that we will be able to hold broadly the volumes. I do not see any reason to be stressed out. And I think the other thing is that, what I believe is going to happen is that, the peak has been reached and therefore as we go towards the second half I think there will be a little bit of stability as far as pricing and other things go.

Analyst probed on the sustainability of Parachute's volume given a 60% price increase, and management expressed confidence in holding volumes through strategic actions, market share gains, and expected price stabilization.

Asked by Mihir Shah

So, I think mere distribution or placing a product does not lead to market share. I am alluding to some D2C brands. And I do not think Nielsen captures them at all. So, whatever share we have got would have come from the large, organized players. So, I do not think there is any concern with respect to D2C players. As I said, I think the biggest gain has come because of our SETU initiative, which is involved in direct distribution availability and weighted distribution.

Analyst sought clarity on the source of VAHO's double-digit growth and market share gains, with management attributing it to Project SETU's direct distribution and gains from organized players, not D2C brands.

Asked by Harit Kapoor

Okay. I think I covered this last time. There are two cohorts. Beardo and Plix have broken even. In fact, Beardo is close to double-digit EBITDA. Plix has broken even too. They are now on an accelerated growth path, and obviously they will continue to perform, because of cost and scale synergies. So, in order to make them grow at an accelerated pace, I do not need to sacrifice margins. Actually, EBITDA will also increase. As far as Just Herbs and True Elements are concerned, we are okay with moderate growth and get to a path to breakeven within the next 18 months. The biggest one, is that I think we have a unique opportunity for all these brands to have access to the entire Marico cost structure, whether it's procurement, whether it's supply chain. Take for example, digital media buying - we are buying as One Marico, which gives us structural cost advantages that standalone digital brands don't have. And those are the things we are tapping. For example, in Beardo, when we insourced one or two of the hero SKUs into our own manufacturing system, we straightaway got a 500 bps to 600 bps improvement in gross margin. We are starting that process now.

Analyst questioned how digital brands could achieve both aggressive growth and improved margins, and management detailed the profitability status of existing brands and the benefits of leveraging Marico's cost structure and insourcing.

Asked by Arnab Mitra

I just want to call out one thing, Arnab, that our vulnerability towards copra price fluctuations have come down over the years, as we pulled multiple levers of margin expansion that we discussed over the call in the last one or two quarters. For example, Foods gross margin or digital business margins. In fact, driving VAHO growth through mid and premium segments is also helping us drive up margins with a better mix. In fact, rapid scale-up of the premium portfolio in international business, and the scaling up of smaller business units in international business, all these are additional profit levers. And therefore, our dependence on copra as a lever of profitability has come down, and will keep going down over the next few years. Just to share a number, the dependence on Parachute and Saffola for profits has gone down by approximately 1,000 basis points over the last few years. So, therefore, we are not as vulnerable due to copra and edible oil prices now, as we used to be let's say few years ago.

Analyst inquired about the reasons for high copra prices and Marico's current vulnerability. Management explained the supply-demand dynamics and highlighted a significant reduction in the company's dependence on copra for overall profitability due to diversification.

Asked by Nitin Gupta

It's very difficult to give an exact breakup of that ₹20,000 Crores, but the idea is that on all the core categories, we have given some guidance. For example, let's say we are talking about Foods 25% plus growth, D2C 25% plus growth, VAHO we are expecting to deliver double-digit growth. A combination of all of these, plus of course international business, we also expect mid-teens sort of a number. With a combination of all this, this ₹20,000 Crores can be achieved.

Analyst sought a segment-wise breakdown for the ambitious long-term revenue target, and management provided directional growth targets for key segments that collectively support the overall goal.

Asked by Nihal Mahesh Jham

So, to be honest, while we kicked off SETU sometime around one and a half years ago, but the impact has just started because we were prototyping SETU. I would say that we are seeing the first signs of growth of SETU, and you will see perhaps better, impact of SETU as we go into the second half of the year. There are two parts to it. One is the rural, where we are not only doing direct distribution, but also converting some of our indirect to direct using far more technology and getting control of EBITDA ranges. The second part of the SETU is urban, where we will increase our presence in food specialty stores, cosmetic as well as chemists, which we will unfold as we grow. So, this will lead to two things. One, it we will certainly see a GT improvement and GT growth as we move from quarter to quarter. This process, while we said has been around for three years, I would knock off the first six months because we were trying to get the model right. I would say it has been one year and there are two more years to go. But we are quite confident, that what we have achieved in this is two things. One, we believe that the long term sustainable competitive advantage for incumbents or large players in the FMCG sector is strength in GT. GT is not going to vanish overnight. Therefore, while we get short term sales by investing in OT, we have said that it is on our interest to ensure that our distribution system in terms of ROI stability stays continuously in control. We were the first to call about this issue of GT and yes, that's why we started this SETU. And the second thing it will start doing is we will be able to do range selling. Tomorrow, when some of the digital brands hit a certain critical mass, we can create a specialized GT channel for the say the top 10,000 to 15,000 food outlets or the top 5,000 beauty stores or the top 10,000 chemists. So, that's the other thing which we have not even leveraged yet. That will be Phase 2B of SETU.

Analyst inquired about the progress of Project SETU, and management provided a detailed update on its impact on rural and urban distribution, highlighting its role in long-term competitive advantage and future expansion plans (Phase 2B).

Asked by Harit Kapoor

Yes, I think when we talk about a five-year number, it's an aspiration. We now put the building blocks in place to do it. It is very difficult to say inorganic vs. organic. I have never believed inorganic to be a substitute for organic growth. Inorganic is always an accelerator therefore for us, and in today's uncertain world, there always has to be a Plan B and a Plan C. So, I do not see any inorganic component in that kind of a plan. Given that we have started the year on a good note and have the building blocks in place diversification, getting VAHO back into double-digit value growth, international business getting into teens, our ability to deliver 14%-15% growth which takes us to that goal is possible. I think this year we have talked about around 25% which accelerates this. And that's why I told in the opening commentary that in order to secure that aspiration, we will try and attempt to hit the first 5000 cr., I mean to move to 15,000 cr. in two years.

Analyst asked for a breakdown of organic vs. inorganic growth for the long-term revenue doubling target, and management clarified that while inorganic acts as an accelerator, the primary focus is on organic growth drivers and building blocks.

Asked by Nitin Gupta