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Price correction may push Parachute oil back to high growth in H2

From 12 per cent growth in Q2FY18, Marico’s flagship hair oil in rigid packs fell sharply to 8 per cent in Q2FY19 as volumes further edged down 1 per cent YoY during Q2 of this fiscal.

Published: 27th October 2019 08:07 AM  |   Last Updated: 28th October 2019 02:47 PM   |  A+A-

Parachute Hair oil

Parachute Hair oil

Express News Service

Homegrown FMCG major Marico Ltd is looking at taking focused pricing calls for its flagship hair oil brand, Parachute, in the next couple of weeks to sail through the choppy waters of a slowdown in consumption. To begin with, the company plans to make the conversion packs more attractive among heavy consumers to bring back growth in the core markets.

“We are taking some actions, very selective actions, which are basically not for loyalty packs but for heavy consumer upgradation packs. This should get us back slowly to high single-digit growth in this quarter and the next,” Saugata Gupta, managing director and chief executive officer, Marico told analysts in a post-earnings call.

From a double-digit growth of 12 per cent in Q2 FY18, Parachute in rigid packs fell sharply to 8 per cent in Q2 FY19. Volumes further edged down 1 per cent year-on-year during the second quarter of the current fiscal.

According to Gupta, the company witnessed a significant supply chain disruption in the first week of August due to floods in its high-contribution markets of Maharashtra and South which further accelerated the downturn. In the first half of the year, however, Parachute volumes were five per cent. That’s because the company was in an advantageous position, while local players were disadvantaged in the post-GST scenario with lack of adequate liquidity. “Had we taken a pricing action, during around 40 days in this quarter when the copra prices had gone further down, we would have gotten back volumes,” Gupta said, adding there is, however, a slight recovery in volumes in October. 

Abneesh Roy, executive vice-president at Edelweiss Securities, pointed out that coconut oil forms the biggest share of Marico’s top line and bottom line. “Copra prices have been hardening over the past few quarters. A greater-than-expected inflation can hurt the margins substantially.” Gupta, however, said there are no indications of any significant inflationary situation over the next six months at least. “This gives us comfort to take some pricing action to get back volume growth in Parachute without investing -- without compromising on margin,” he added.

As far as value-added hair oil is concerned, Gupta believes tepid performance in some of the premium brands have slowed growth from a 15 per cent high in Q1 FY19 to 7 per cent in Q1 FY20 and further to a mere 0.1 per cent in Q2 FY20.

“We, however, see opportunities in the bottom of the pyramid. I think we have to be more aggressive in hair fall category, which is something we haven’t done other than South. So I see that's happening and expect to deliver double-digit volume growth over the medium term.” 

Besides, Marico is working at improving partner profitability, as part of its efforts to streamline rural operations, because ROI instability has led to lower stocking by traders. Furthermore, to cater to urban consumers, the company plans to tweak its distribution and supply chain to take advantage of digital platforms.



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