Marico slips on profit warning

Marico Industries lost ground on selling pressure after the personal care major issued a profit warning stating that its turnover and profit growth for the fourth quarter ending 31 March 2003 would be noticeably lower than those recorded in the past.

In the opening trades on Tuesday, the Marico Industries stock lost 2.18% to Rs 159, which recorded volumes of only 100 shares on the BSE till 10:20 IST.

Yesterday after market hours, the FMCG company circulated an analyst note to place the changing context before its financial stakeholders and members of the analyst community, so that there is a better understanding of the financial performance.

The company's refined edible oil business has been impacted by the shortage of Safflower oil in the second half of FY 03 impacting the availability of Saffola range of products. This is likely to continue in FY 04. While the excise on refined edible oils introduced in the Union budget 2003-04 will also have an impact of the company's financials.

Introduction of VAT effective from 1 April 2003 is likely to lead to de-stocking in the trade during March 2003, i.e. the transition period. In the long term however the new VAT regime (as it appears today) is likely to have a positive impact on the categories in which Marico is present.

The company has not given any revised targets. The company has, at various points in FY 03, given a guidance on its targets – top-line growth of around 10% and a bottom line growth of around 15%, while holding return on capital around 30%. Over the last three quarters of FY 03, the company has met these targets and recorded a turnover growth of 13% cent and a bottom line growth of 17%.

On account of the above-mentioned factors, the company expects that its Q4 and FY 03 turnover and profit growths would be noticeably lower than those recorded in the past quarters. For the full year FY 03, while the turnover growth and ROCE would be in line with the past guidance, the profit growth would be lower.

Meanwhile the long-term outlook beyond the current investment phase is expected to remain positive - Marico will keep building enduring business value around the four pivotal sources of its competitive advantage - Branding, Distribution, Cost Management and Innovation.

For Q3 ended 31 December 2002, the company registered a 10.75% rise in its net profit to Rs 12.25 crore on a 11.15% increase in net revenues to Rs 196.2 crore (Rs 1.96 billion). Meanwhile on a consolidated basis the company registered a 14.5% rise in net profit to Rs 13.92 crore on a 12.3% increase in net revenues to Rs 206.25 crore (Rs 2.06 billion).

Incorporated in October 1988 as Marico Foods, Marico Industries acquired its present name in October 1989. It began commercial operations in 1990 when it took over the consumer products division of Bombay Oil Industries. In September 1990, it entered into an agreement with Bombay Oil for the use of Parachute and Saffola brands. Marico purchased a unit at Jalgaon, Maharashtra, belonging to Rasoi Industries.

Around 81% of the company's revenue is derived from raw/refined oils, 5% from hair oils and the balance 14% is contributed by the other categories. Marico's key strength, besides its ability to brand a commodity, is its distribution network. The company's products reach out through about 1.4 million retail outlets serviced by its nationwide distribution network comprising 5 regional offices, 28 carrying and forwarding agents and about 3400 distributors and stockists. The company's export market comprises largely the Middle East and SAARC countries. Marico is also present in Bangladesh through its wholly-owned subsidiary, Marico Bangladesh.

The company has been able to maintain its marketshare despite the tough competition from other national and regional players. The company is, at present, highly dependent on its three main brands -- Parachute, Saffola and Sweekar. The growth in this category will be difficult to sustain in the longer run due to increasing competition

Promoters holds 65% stake in Marico Industries, while public, institutions and foreign bodies hold 7.5%, 17 % and 9% respectively.