Marico will take margin hit to retain consumers

After taking multiple price hikes on its flagship brands Parachute coconut hair oil and Saffola edible oil to offset high input costs, hair oil major Marico Ltd has said it will prefer to take a hit on margins than risk losing consumers from here on.

Impacted by surging input costs, the company recorded a 12.2% operating margin, down by 260 basis points year-on-year, for the quarter ended December 2010. The impact of raw material cost pressure for the company was 520 basis points during the third quarter.

Milind Sarwate, chief of HR, finance and strategy, Marico Ltd, said the company will focus on growing volumes than hiking product prices as consumer purchases are already impacted as a result of high food inflation.

Copra, the single biggest raw material for Marico has become dearer by 50% in the last three months alone. Year-on-year copra prices are up by as much as 65-70%.

Marico has over the last two quarters, collectively taken a 24% hike on Parachute. An additional price hike of 8-9% is in the process of being implemented.

The latest hike on Parachute is the fourth one in FY11. It has, however, not been sufficient to safeguard margins as they continue to be squeezed. “The raw material cost push (on copra) has been 65%, of which we have been able to pass only 32-33% to consumers. It is not advisable to pass on the entire cost push to consumers because we believe the India consumption story is strong,” Sarwate said.

In the current quarter, analysts suggest, volume growth for Marico in hair oils could decline owing to the price hikes the company has initiated over the last two quarters, especially the ones taken on low-priced stock-keeping units (SKUs) or the recruiter packs.

Sarwate said there could be an impact on volume with consumers feeling the pinch of high food inflation.

“We feel that it is easier to get the margin back than getting the consumer back. Competition on the consumer-end is far more serious. We would rather retain the consumer than retaining the margin,” he said.

On Saffola too, the company had hiked prices by 10-15% in the last two quarters. Marico enjoys a 53% market share in the coconut hair oil category, while in the premium edible oil category, its market share is 51%.

During the third quarter, the company saw a 22% growth in turnover at `818 crore. Profit after tax (PAT) grew 12% at `70 crore. The volume growth in domestic business was 10% while that in international business was higher at 25%.