Marico’s stock dropped 4.5% today as overall performance in September 2012 quarter has been disappointing. Consolidated sales growth of 19.4% is tad lower than 20% expected by analysts though. Domestic consumer business (68%) grew 19.3% partly aided by 28% topline growth in newly acquired brands namely Set Wet, Zatak and Livon. Even volume growth of 14% has been propped up by these brands as excluding the above brands, organic volume growth at 9% has come in line with expectation.
The company’s focus on volume growth and market share gains seems to be affecting profitability. Growth in operating profit at 27% in Q2 is lower than 36% expected. Significant improvement in raw material costs (percentage to sales down 678 basis points to 48%) led by decline in copra prices (average prices down 33% year on year) was compensated by increase in other overheads mainly advertising and promotion (percentage to sales up 453 basis points to 14%).
More importantly, net profit growth of 10% is terribly lower than 40% estimated. Interest , depreciation and taxation jumped significantly in the range of 25-45%.
The company continues to focus on volume growth and robust new product introductions. Hence, continued pressure on profitability cannot be ruled out as advertising and promotion expenses may continue to remain at elevated levels though declining trend of copra prices is expected to remain sustainable and provide some support to margins.