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Marico: Concentrating on brand promotion

Jul 29, 1999

Marico Industries has posted sales of Rs 1.35 bn (up 24% YoY) and a net profit of Rs 60 mn (down 25% YoY) for the quarter ended 30th June 1999. Marico Industries, promoted by the Marivala family, is the market leader in the coconut oil and branded refined oil segment. The company was incorporated to take over the consumer products division of Bombay Oil Industries Limited. The company owns the Parachute, Mediker and Saffola brands.

The company has stepped up its advertisement and sales promotion expenditure to 8% of sales (6.7% of sales) and this has contributed to the fall in margins. While sales increased 24%, expenditure jumped 29% as a result of this jump in advertisement spending. Overall, the net profit margins have deteriorated from 7.3% to 4.4%.

The fast moving consumer goods industry is witnessing intense competition, especially after the entry of a number of international companies. This has made it necessary for the company to increase its ad spend to its current levels. Therefore, it is only likely that the company could further witness deterioration in margins. Future growth in topline is likely to come from increase in volume sales rather than price increases.

Market View:
Being a company operating in the fast moving consumer goods sector, with well known brands and a large distribution network, most analysts have rated it as a 'BUY'.

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