High input cost to impact profitability: Marico

FMCG firm Marico, maker of the Parachute hair oil brand, has said its profitability is likely to take a hit in the next few quarters due to surging raw material prices and overall negative macro-economic sentiment.

"Factors like inflation, especially in food items and higher consumer finance interest rates may have already begun affecting overall consumer demand in India," Marico said in latest update to the Bombay Stock Exchange (BSE).

Shares of Marico fell sharply by 10.12% to close at Rs 143.05 on the BSE.

Marico said prices of copra (dried kernel of coconut), a major input material of the company, have surged by 80% in the last one year. The commodity, at present, constitutes 40% of total material cost of the group.

"The resultant increased unpredictability of the copra market creates an imponderable for us. There is a possibility of our profit after tax (PAT) for the next couple of quarters falling short of the current expectations of market participants, particularly our investors and stock analysts," the company said.

According to a report by Prabudas Lilladher, higher input costs can impact near-term margins of Marico while ad-spends are unlikely to moderate.

However, the company has not seen any volume resistance in Parachute despite 32% price increase, reflecting the strong brand equity it enjoys, it added.

"Marico underscores the need to maintain 'worthwhile' ad-spends in order to support the new product introductions, which can potentially impact margins in the near term," the report said.

In the fiscal ended March 31, 2011, Marico had a net profit of Rs 315.33, while its net revenue stood at Rs 2,353.71 crore.