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Marico tumbles after profit warning; Goldman cuts estimates

Marico shares tumbled over 8% on Thursday, after investors failed to digest a profit warning issued by the company late Wednesday. The FMCG company has gone to the extent of branding analysts' profit expectations as "excessive" in its update, which surprised the market.

September 15, 2011 / 12:09 PM IST
 
 
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Moneycontrol Bureau


Marico shares tumbled over 8% on Thursday, after investors failed to digest a profit warning issued by the company late Wednesday. 


The FMCG company usually issues updates post every earnings, so this mid-quarter warning, where it has gone to the extent of branding analysts' profit expectations as "excessive," surprised the market.


At 10:30 hrs, Marico shares were traded down 8.1% at Rs 146.65. The stock had earlier been a fast mover on the markets, rising 10% in the last three-months, outperforming the FMCG index, which rose near 3%, even as the broader Nifty index slipped 8%.


"On balance, we sense that the numbers expected from us by financial community members, especially stock market participants, are somewhat excessive," Marico said.


It has warned it would be difficult to meet street expectations for at least couple of quarters as high input costs and accelerating inflation bite margins.


Copra, which is used in coconut oil, constitutes 40% of its raw material costs, and Marico said year-to-date price of copra this fiscal is up 80% compared to last year.


The company has taken some price hikes to control input cost pressures. However, due to various issues, especially inflation, it may not be able to hike prices further, thus exposing margins, it said.


"There are some unconfirmed signs that factors like inflation, especially in food items and higher consumer finance interest rates may have already begun affecting overall consumer demand in India. Against this backdrop, we may not take any further increase in retail prices as it may impact the volume growth numbers," Marico said.


It also said that recent political turmoil in several countries in west Asia had also hampered operations there, with "virtual standstill" in business in countries like Libya, Syria and Yemen.


"We must therefore point out that on account of the various factors, there is a possibility of our profit after tax for the next couple of quarters falling short of the current expectations of market participants particularly our investors and stock analysts." 

Goldman Sachs quickly followed up, cutting its estimates on Marico

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