PAT in coming quarters may fall short of market expectations: Marico

PAT in coming quarters may fall short of market expectations: Marico

Mumbai: Consumer products maker Marico Ltd said on Wednesday its post tax profit in upcoming quarters may fall short of market expectations due to rising costs and continued uncertainty in the global markets.

“We are confident of the long-term picture but quarter to quarter things may vary. This update has been put out because we see the market putting out numbers above what we feel we will achieve," Milind Sarwate, group chief financial officer, told Reuters.

Sarwate, however, refused to give details on whether the firm is on track to achieve the growth guidance it had earlier given.

Marico, which makes the ‘Parachute´ range of hair products and edible oil brands such as ‘Saffola´, in July said it expects to clock 24-25% growth in sales in FY12 and said its profit growth will lag sales and slow down to around 10%.

For the quarter ended June, the company posted a 15% jump in consolidated net profit to 85 crore. Its net sales grew to 1,050 crore from 787 crore.

“Lack of pricing power and the need for diversification in their product portfolio is what we think are the major issues for Marico," said Naveen Trivedi, an analyst with PINC Research, who has a ‘hold´ recommendation on the stock.

The consumer products maker said it expects operating margins to get affected due to mounting raw material costs and higher advertising and promotional spend after a slew of new product launches.

Copra prices, which constitute 40% of the total raw material cost for the company, have gone up by nearly 80% year to date in FY12.

“There is very little clarity on the way the copra cycle will play out. My expectation is that it is high time the cycle turns the other way round," Sarwate said.

The rise in prices has been due to an increase in the usage of vegetable oils as non-conventional energy sources and an increase in speculative activity in the commodity markets, he added.

The consumer products maker, which has taken several price hikes in the past, said it does not plan to go in for further price increases despite a sustained jump in input costs, in order to focus on volume-driven growth.

“There are some unconfirmed signs that factors like inflation, especially in food items and higher consumer finance interest rates may have already began affecting consumer demand...we may not take further increase in retail prices as it may impact the volume growth numbers," the statement added.

Marico also said its business in the Middle East and North African (MENA) markets, which contribute 5% to its overall sales, remains uncertain along with forex fluctuations impacting its overseas business.

There has been a virtual standstill in business in some countries like Libya, Syria and Yemen, the statement said.

Marico has had issues with local authorities in these markets when it has tried to raise prices to completely cover the cost push, the statement added.

On Wednesday, shares of the company, which have risen 33% in 2011 compared to a 19% fall in the main index, ended up 0.92% at 159.5 in a firm Mumbai market.