FY21 Overview

While the Management Discussion and Analysis (MD&A) chapter in this Report provides a detailed account of our performance, I would like to cover the key facets of the year gone by. After a sharp drop in the first quarter, the domestic business quickly bounced back in the following quarters to exceed pre-COVID levels as more than 90% of our portfolio comprises daily-use items under the aegis of strong market leader brands. We witnessed robust growth across each of our core portfolios of Coconut Oil, Saffola Edible Oils, Value Added Hair Oils and Saffola Oats. Understandably, discretionary portfolios of Premium Personal Care were not much in favour with very limited occasions of use as mobility restrictions prevailed in varying degrees through the year. The pandemic, however, has driven structural shifts in consumption patterns towards hygiene, immunity and nutrition categories. While your Company made tactical plays into hygiene categories during the year, it also made some enduring forays into immunity and nutrition categories. Extending the strong health equity of its brand Saffola, your Company introduced Saffola Honey, Saffola Arogyam Chyawanamrut Awaleha, Saffola Oodles, Saffola Mealmaker Soya Chunks and traditional immunity boosters under Saffola Immuniveda. As a result, we have materially scaled up the total addressable market (TAM) of our Foods portfolio to ~`5,000 Crores and are targeting a topline of `850-1,000 Crores in this franchise by FY24. While Modern Trade footfalls receded, traditional trade mounted a comeback led by strong growth in rural, more effective social distancing and retail stores delivering goods at home in urban. Growth in E-Commerce accelerated further with its share of domestic business rising from 5% in the previous year to 8% in this year. We witnessed sharp input cost pressure in the second half of the year as copra prices were up due to temporary supply constraints, while prices of edible oils and crude-related inputs rose in line with the surge in global commodity prices. However, the business delivered healthy earnings growth as we countered a part of the cost-push through pricing interventions, aggressive cost management and rationalisation of ad spends in discretionary categories. In view of the transient nature of the cost-push, your Company prioritised volume growth and market share gain momentum over short term margins.

The International business also recovered well to post high single digit constant currency growth after the initial impact of the pandemic. Bangladesh consistently delivered double-digit constant currency growth in each of the four quarters. Vietnam gradually recovered to end the year on a positive note. MENA had a flattish year and South Africa grew healthily on the back of buoyancy in the health care categories. The New Country Development & Exports business also came back well in the second half of the year after pandemic related disruptions in the first half. Profitability of the overall business improved due to higher share of business from Bangladesh.

Strategic Overview and Outlook

The second COVID surge has caused much more distress to the community and affected even the rural pockets of the country. As a result, the momentum in consumption slowed down in the first quarter of the new fiscal year but the impact was much lower as compared to the first lockdown as supply chains are far more stress-tested, lockdowns are staggered and localised, and retail stores are operating, albeit, for limited number of hours during the day. While the situation evolves, your Company will stay focused on delivering sustained profitable volume growth and market share gains by growing and premiumising the core portfolio, scaling new engines of growth in Foods and Premium Personal Care categories, while consistently moving along the path of creating shared value. Consumer centric innovation, adaptive business and GTM models, leveraging digital and technology, cost management, nurturing talent and culture and mainstreaming sustainability will remain key enablers in this journey.

Rural has continued its good run through the year driven by good harvests and government stimulus. We believe direct reach in rural serves as a competitive advantage and aim to expand our stockist network by another 25% over the next 2 years. In urban, we will maintain focus on augmenting our reach in chemist and cosmetic outlets. Given the challenges faced during the lockdown, your Company stepped up its efforts to ensure availability of its products through a number of innovative GTM models including tie-ups with food-service aggregators and other logistics partners, launch of a direct to consumer portal, tele-caller facility for direct reach to the top retail outlets and a retailer and consumer-ordering app, among others. We continue to invest in these initiatives to stay ahead of the curve in the event that any of these models present an opportunity to scale up over the medium term.

The pandemic also reinforced the importance of driving process simplification across our value chain and reducing the hidden cost of complexity to the extent possible. The rationalisation of more than 25% inefficient SKUs across our portfolio has been one of key steps in this direction.

Given the speedier rise in digital media consumption, your Company is ramping up its digital transformation journey to enhance consumer engagement, improve the digital quotient (DQ) of its brands and build capabilities in data analytics for faster and efficient decision-making across the value chain. We have carved a separate business unit within the Company to handle digital brands that operates independently in terms of processes and systems. Beardo, now fully integrated into our fold, should touch a run rate of about `100 Crores in FY22. We aim to replicate this success by adding two to three more digital brands, either organically or inorganically, over the next three years.

We have recently concluded a Net Revenue Management (NRM) exercise in consultation with a global management consulting firm. NRM is an approach for maximising the revenues and profits from a company’s brand and product portfolio over time, with harmonious growth across channels. We believe it will enable the Company to reinvest these pricing gains towards accelerating innovation, building brand equity, and strengthening brand relevance to consumers. The Company has begun operationalising the recommendations stemming from this approach in FY22.

In the International business, having invested in requisite leadership and organisational capabilities, we aim to chart a predictable and sustained growth trajectory over the medium term. However, macroeconomic challenges stemming from the resurgence of COVID-19 or any geopolitical instability in our key markets pose downside risks to our outlook for the near term. In Bangladesh, we will leverage our distributive strength to further consolidate market shares in the core portfolios and scale up the multiple new portfolios launched recently. In Vietnam, we will continue to leverage our market leadership position and invest in the male grooming category as well as drive excellence in sales and distribution systems. The Company has also been aggressive cost management programmes, which will enable resource generation for brand building. In the MENA region, the Company will focus on getting the basics right by judiciously investing behind brands and Go-to-Market initiatives. We will be aggressive on cost management in Egypt to enable the business to tide over the macro headwinds. We remain cautious on the near-term outlook of the South Africa business but expect to protect the core franchise of ethnic hair care and health care over the medium term. We will also continue to invest towards developing new export markets and scaling this business profitably.

Your Company holds its medium-term aspiration of delivering 13-15% revenue growth, backed by 8-10% volume growth in the India business and broad based double-digit constant currency growth in the International business. Your Company will continue to invest behind brand building to support market growth initiatives in core categories as well aggressively scale up new products. Having accrued `150 Crores in cost savings in this year, your Company will continue to drive ambitious cost savings targets each year. The Company would be comfortable maintaining operating margin at 19% plus over the medium term.

Responsible Marico

Sustainability is an inseparable part of our ethos, which we believe will empower us to lead with excellence, agility and innovation and in turn, create value for all stakeholders throughout our journey. To this effect, our sustainability agenda was framed along key focus areas namely, responsible resource consumption, climate change, circular economy, sustainable supply chain, product responsibility and community development. As part of Marico’s continual focus towards shaping a safe and sustainable future, we are prioritising our Decade of Action goals towards climate action, restoration of natural assets, promoting eco-conscious consumerism and delivering socially inclusive growth.

While our Chairman has apprised you of our progress in other areas in his message, I would like to shed light on our initiatives in the areas of sustainable supply chain and product responsibility. We aim to integrate environmental conservation principles, ethical standards, and socially responsible practices throughout the value chain by capacitating suppliers to commit to sustainability goals. I am pleased to report that 38% of our critical value-chain partners have been certified with SAMYUT (Marico’s Responsible Sourcing Framework) – Level 1 and 93% of our raw materials are indigenous and sourced locally.

We aim to reduce the overall environmental and social footprint of our products across its lifecycle, ensure 100% compliance on product quality, ingredient safety and disclosure on product formulations, and accelerate consumer-centric product innovation to improve its health and nutritional benefits. We have created a Product Sustainability Index (PSI) framework for estimating the environmental and social footprint of our products’ across their lifecycle stages. Currently this study has been completed for our flagship brand, Parachute Coconut Oil.

Our brands continue to grow their franchise and stay firmly tied to their purpose. Nihar Naturals Shanti Badam Amla and Saffola, have been committed to their purpose of education of underprivileged children and spreading awareness about heart health, respectively. In response to our efforts, India CSR Awards recognised Nihar Shanti Pathshala Funwala’s Teacher Empowerment Programme under the Best Education Project in Madhya Pradesh [Large Impact] category. The Safe and Nutritious Food (SNF) school contact programme supported by Saffolalife, covered 16 schools across Maharashtra, Gujarat and Chandigarh and certified their canteens as ‘eat right canteens’ and spread awareness about the habit of safe and healthy eating among more than 60,000 students.

The Triple Bottom Line

People, Planet, Profit have never been more relevant. Businesses are expected to play a positive role in society and when it comes to driving positive change, brands bear a great deal of responsibility too. It is evidently clear that consumers want to adopt brands with a relevant purpose; millennials want to work in organisations that make sustainable choices and investors across the globe are increasingly allocating capital in businesses that deliver on all three fronts. By clearly outlining the responsibilities, rights, stakeholders’ expectations and the ethos of the organisation, good governance provides a structural framework for your Company to stay focused on our purpose of shaping a sustainable future. It helps us to futureproof excellence, safeguard value creation and steer agile transformation within the organisational ecosystem.

For millennials, who represent the workforce of tomorrow, we believe value-based transformational goals will act as catalyst to improve productivity, enhance engagement and provide job satisfaction. There is greater representation of younger minds in driving sustainability initiatives at Marico and they continue to exceed the level of participation & commitment expected from them. Your Company is proposing to add ESG-linked performance goals in the remuneration structure of its senior management as we are moving towards defining our talent value proposition across all levels of the organisation such that each member is a brand ambassador of sustainability.

I am pleased to share that your Company ranked 6th among India’s Most Sustainable Companies with an A+ rating, in the rankings released by Sustain Labs Paris in association with BW Businessworld. Marico was also amongst India’s Top 30 Best Workplaces in Manufacturing 2021 and amongst India’s 50 Best Workplaces for Women - 2020 by the Great Place to Work®️ Institute (India). Your Company was also conferred the ‘Best D&I Award for Inclusion of Millennials’ by The Women Leadership Forum of Asia.

Traversing in the VUCA world that we live in and making a difference in every life we touch is not possible without the vote of confidence of all our stakeholders. Therefore, I would like to take this opportunity to express my sincere gratitude to all of them - our shareholders, Board of Directors, management team, consumers, suppliers, bankers, investors and partners, for their unwavering faith in Marico.

Warm regards,

Saugata Gupta

Managing Director & Chief Executive Officer