Mumbai: Godrej Consumer Products Ltd and Marico Ltd are likely to report healthy profit growth in the April-June quarter, helped by softening input prices and better margins because of cost cutting measures.
Personal product maker Godrej’s profit will grow by half from the year-ago quarter, while rival Marico may report a 22% jump, according to a Reuters poll of analysts.
“In terms of operating profit growth, we believe the quarter ending June 2009 is likely to be one of the best of the past and next few quarters. The full impact of the commodity costs decline should be felt in the June quarter,” HSBC Global Research said in a report.
Prices of edible oils fell during the quarter and consumer companies tightened their spending on advertising and general expenses, helping them book robust profits, even as slowing demand and price cuts in some products may weigh on revenue.
“What is helping Godrej Consumer is the fall in input costs. Palm oil has corrected 50% from the peak in the last 6 months,” Anand Shah, analyst at Angel Broking, said.
“Raw material savings had not been reflected in their earlier results. It will get reflected now, as earlier they were carrying inventory,” Shah said over the telephone.
Brokerage Sharekhan in a recent report said it expects Godrej’s operating margin to widen by 467 basis points and strong growth in soaps, helped by buoyancy in rural demand through strong distribution and lower priced products.
Rival Marico, known for its flagship ‘Parachute´ hair oil brand should and edible oil ‘Saffola´, will benefit from higher margins due to lower costs, analysts said.
“Due to lower input costs and advertising spends compared with same period last year, we expect operating margins to improve 245 bps (basis points) y-o-y,” brokerage ICICI Securities said in a note.
Prices of Marico’s raw materials copra, sun flower oil and kardi oil declined by 18.2%, 32.4% and 14% in the quarter, easing out significant margin pressure, Sharekhan added in the report.
But while admin costs and general expenses have fallen, the revenue growth too has slowed as the effect of earlier price hikes was now wearing off and due to price cuts the firm undertook in certain segments, Angel Broking’s Shah said.
“Marico has implemented price reductions in the Saffola portfolio at the beginning of April 2009, which lowered the premium that Saffola enjoyed over other brands in the branded oil market,” the ShareKhan report said.
Godrej Consumer, which will report results on 25 July is likely to post a 52.2% rise in April-June net profit to Rs595 million, while sales are expected to rise 10% to Rs3.97 billion, the Reuters poll of brokerages showed.
Marico, which will report results on 23 July will see net profit rise 21.6% to Rs563 million while sales may rise 12.8% to Rs6.77 billion.