Domestic rating agency ICRA on Monday said India Inc’s operating profit margin declined 2.37% year-on-year to 16.3% in the December quarter due to inflation and rising energy costs.
When viewed sequentially, operating profit margin for the December quarter widened 1.8% over the previous September quarter, ICRA Ratings said, due to reduction in input costs and hike in prices by several companies.
Going forward, while rising prices and sequential input cost reduction could lift margins in the near term, geopolitical tensions, recession concerns and foreign exchange volatility will continue to pose risks, the agency said.
Excluding companies in the financial sector, corporate revenue rose 17.2%, which was as expected, with the hotel, oil and gas, auto, airlines and power sectors leading the way, the agency said.
However, revenue growth was lower at 1.4% from a sequential perspective, as inflation hit consumer sentiment.
Its sector head Shruti Thomas said, “India Inc’s earnings improvement potential will depend on the impact of energy cost inflation, bearish trends in developed markets and foreign exchange fluctuations.” Said.
The interest coverage ratio for the adjusted agency sample for sectors with relatively lower debt levels such as IT, FMCG and pharma improved to 4.3x from 5.1x in Q3 on a sequential basis. This was primarily due to lower earnings in select sectors than historical trends amid higher interest rates.
According to Ms. Thomas, credit metrics are likely to show a gradual improvement going forward, given the recent trend of softening commodity prices, modest price increases by corporates and reduction in energy costs.