Marico says urban consumption revival to take six months

Indian consumer goods maker Marico expects urban consumption will take at least six months to revive, its managing director told Reuters, signaling more pain for the sector from food inflation which has hit a 15-month high.

With a market cap of $9.12 billion, Marico is best known for its iconic coconut oil brand “Parachute” and edible oil brand “Saffola”, and competes with the likes of Hindustan Unilever  and Nestle.

India’s annual inflation for food items, which account for nearly half of the consumption basket, hit a 15-month high of 10.87% in October, and retail inflation surged to a 14-month high in the same month, driven by a jump in vegetable prices and dashing hopes of an interest rate cut by the central bank next month.

“It will take a couple of quarters for urban consumption to revive. But I think once the food inflation is sorted out to a large extent, urban consumption is expected to recover,” Marico Chief Executive Officer and Managing Director Saugata Gupta said in an interview in Mumbai.

“Whenever there is a food inflation, there is an impact on FMCG (fast moving consumer goods)…consumers either downgrade or titrate consumption,” he added.

India’s middle class, estimated to be a third of its 1.4 billion people, has been cutting spending due to higher food inflation, impacting the earnings of largest consumer goods firms.

Though consumption is mainly affected among the middle- and lower-income classes, there is not much impact on those with high incomes, Gupta said.

India has seen high luxury spending in recent months – German luxury car manufacturer Mercedes-Benz’ car sales in India grew 13% in first nine months of this year, its best-ever performance, while sales of luxury apartments in country’s top seven cities surged nearly 38% during that period.

Marico’s international business contributes around 27% of consolidated revenue and it has a strong presence in Bangladesh, Vietnam and the Middle East, and is looking to expand operations in the United States and East Africa, as well as entering the Indonesian market, Gupta said.

In Bangladesh, where Marico has a distribution network of more than 770,000 outlets, the company’s operations were briefly disrupted after violent student-led protests that led to the resignation of Prime Minister Sheikh Hasina in August.

Gupta said Bangladesh’s share of Marico’s international revenues dropped from 44% in the year ended March 2024 to under 40% now, and could fall further as its grows more in other geographies.