India Inc is witnessing a third consecutive quarter of year-on-year decline in profit margins for the April-June 2022 period, a branch of Crisil Ratings said on Monday.
After analyzing 300 companies excluding financial services and oil and gas sectors, CRISIL Research expects operating profit margin to decline by 2-3 per cent for the June quarter compared to a year ago. It said margins are likely to contract in about half of the 47 sectors.
The company’s revenue is projected to register a healthy growth of 30% year-on-year in the first quarter, primarily supported by a rise in prices and marginally increasing volumes, it said.
The rating agency’s estimate came ahead of earnings for the June quarter by most companies, which are set to be announced amid adverse events such as impact on commodities due to geopolitical tensions and depreciation in the Indian rupee to record low levels. Feather.
The agency said the construction-related sectors saw the biggest fall in operating profit margins, at over 9.9%, followed by the investment-linked segment, which saw a decline of over 2.6%.
In construction-linked sectors, steel products saw a sharp margin contraction of around 15% as the increase in input costs — coking coal and iron ore prices — was higher than the increase in steel prices, it said. that was seen in the petrochemicals sector. Huge drop of 15% in margin.
In contrast, consumer discretionary services and products, as well as consumer staples services margin, will report an expansion of up to 3 percentage points in operating profit margin for the quarter, attributable to airline services (which rebounded) in the past. A healthy level following fiscal year operating losses), followed by telecom services (due to tariff hike), and media and entertainment segments.
Consumer-oriented services margins were driven by growth in profitability in the Chinese sector, it said.
“The Ebitda (earnings before interest, tax, depreciation and amortization) margin contract may reach 19-21 per cent in the current financial year,” Director Hetal Gandhi said.
Ms Gandhi said the Ukraine-Russia conflict has raised crude and natural gas prices, and created uncertainty for trade in metals such as steel, which will drive up commodity prices and therefore continue to pressure profitability.
Associate director Sehul Bhatt said the construction-linked and consumer discretionary segments accounted for 54% of incremental revenue in the first quarter.
For the quarter, automobile revenues are projected to grow at a faster 64-67 per cent, driven by a lower base of the previous fiscal, an estimated 22-27% growth in receipts and 30-35% growth in volumes.
Similarly, cement revenue for the June quarter is projected to climb 20-22% on a much lower basis than the previous fiscal, as the year-ago quarter was hit by the second wave of the COVID-19 pandemic. It added that volumes were also expected to grow on a lower basis, though both volumes and revenues were expected to decline on a sequential basis.