Marico Falls After Saying Profit May Miss Analyst Estimates

Marico Ltd. (MRCO), an Indian maker of hair oils and skin-care products, slumped the most in more than 3 1/2 years in Mumbai trading after saying it may miss analysts’ profit estimates as rising input costs dent margins.

The maker of Parachute hair oil and Saffola cooking oil fell 10 percent, the most since January 2008, to 143.10 rupees at the 3:30 p.m. close in Mumbai, while the benchmark BSE India Sensitive Index gained 1 percent.

Marico said yesterday the market estimates of its earnings “are somewhat excessive” because rising prices of copra, which accounts for 40 percent of its costs, may increase the company’s expenses, while accelerating inflation may damp demand. Profit may rise 17 percent to 3.36 billion rupees ($70.2 million) in the year ending March 2012, according to the average of 35 analysts’ estimates compiled by Bloomberg.

“The investor community looked at quarter one, where there was strong volume growth,” said Ennette Fernandes, an analyst at MF Global Sify Securities in Mumbai. “Earnings growth was also quite robust. On that quarterly basis we extrapolated.”

Net income rose 15 percent to 850 million rupees in the three months ended June 30 as sales climbed 33 percent.

The company’s profit for the next couple of quarters may fall short of the “current expectations of market participants particularly our investors and stock analysts,” Marico said in a stock-exchange filing after yesterday’s close of trading.

‘Cost Push’

Marico won’t raise product prices immediately, which would affect its operating margin, according to the statement. While the company has already lifted prices, there remains “some shortfall in the coverage of the cost push,” it said.

There are signs that the pace of inflation and an increase in interest rates is having an impact on consumer demand in the country, the company said.

India’s benchmark wholesale-price index increased 9.78 percent in August, the fastest pace in more than a year, according to the commerce ministry.

Sales by volume grew even as the personal-products maker increased prices, Marico said. “This emboldens us to spell out our preference for growing our volume franchise as compared to focusing on profit margins alone.”

Marico, which got 27 percent of its revenue from outside India in the year ended March 31, said the business situation in the Middle East and North Africa region is “uncertain” because of political unrest in Libya, Syria and Yemen and restrictions on raising retail prices in other countries in the region.

Consumer Stocks

Investors have snapped up consumer-goods producers such as Nestle India Ltd. (NEST) and Marico amid speculation their profits will be sheltered from slowing economic growth. Rising salaries, along with government tax cuts and spending increases after the 2008 credit crisis, have boosted demand in India, the fastest- growing major economy after China.

Per capita income more than doubled to 54,835 rupees in the past five years, data compiled by Bloomberg show.

Marico is the best performer on the 10-company BSE India Fast Moving Consumer Goods Index this year. Hindustan Unilever Ltd. (HUVR), the local unit of Unilever Plc, has advanced 11 percent in Mumbai trading this year. The shares fell 1 percent to 349.3 rupees.

To contact the reporters on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net; Jay Shankar in Bangalore at jshankar1@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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