Marico posts surprise drop in Q2 profit to Rs 301 cr as rural demand slips

Expenses climbed 4%, while revenue increased 3% to 24.96 billion rupees led by growth in international business

India's Marico reported a surprise 3% drop in quarterly profit on Friday, as rural consumers switched to cheaper, unbranded alternatives amid rising inflation.

Net profit for the quarter ended Sept. 30 fell to Rs 3.01 billion Indian ($36.51 million), missing estimates of Rs 3.2 billion, according to Refinitiv IBES.

Expenses climbed 4%, while revenue increased 3% to Rs 24.96 billion led by growth in international business.

Sales volume of Parachute hair oil brand fell 3%.

"(Sales at mom-and-pop stores) remained weak, while the divergence in rural and urban growth grew starker with the former reeling under persistent inflationary and liquidity pressures," Marico said in a statement.

Cash-strapped Indian consumers chose to buy smaller quantities or switch to unbranded products, dampening sales of consumer companies such as Marico, while currency fluctuations added to their woes.

The Set Wet hair gel maker's profit decline comes in contrast to better-than-expected earnings reported by larger peers Colgate-Palmolive (India), Hindustan Unilever and Nestle India.

However, the softening commodity prices would help lower prices of its hair and edible oil and drive up market share during the all-important October-December festive quarter, Marico said, adding that it expects gross margins to expand sequentially.

The company also expects sales volumes in India business to grow in mid-single digits in the second half of this fiscal, after recording a 3% expansion in the second quarter on the back of strong performance in international markets.