India Inc Staring At 3rd Consecutive Quarter Of Profit Margins Squeeze, With Only One In Five Companies Expected To Beat Estimates

Crisil market research said after analysing 300 companies excluding those from financial services and oil and gas sectors. It said almost half of these companies reported operating profit margins in the narrow range of 8-10% and that their earnings growth would be lower than previous quarters. “The trends in profitability are benign so far, but margins will probably fall by 2-3 percentage points for the June quarter,” Crisil Ratings said.

Corporate revenues posted healthy growth of 30 per cent in the first quarter, largely supported by price hikes and moderately rising volumes.

This is once again sharpened by the adverse events like the impact on commodities because of the geopolitical tensions, depreciation in Indian rupee to record lows, adverse weather conditions and reduced demand along with a further weak global economy.

Construction-linked industries saw a sharp drop in operating margins, at around 10.77 per cent, followed by firms outside the construction industry who reported even lower margin erosion of over 2.60 per cent, it added.

Among construction-linked industries, steel products saw a sharp margin contraction of around 15 per cent on-year as input cost escalation – both coking coal and iron ore prices have risen – was higher than the rise in steel prices.

Consumer discretionary services and products, as well as consumer staples services, will report an expansion of up to 3 percentage points in the operating profit margin for the quarter, it said. In contrast, the margins of airline services (which rebounded to a healthy level after the operating loss of last fiscal), followed by telecom services (due to tariff hikes), and the media and entertainment segment will report contraction.

Margins of consumption-based services in the sugar sector increased significantly over 2016 and 2017, driven primarily by higher sugar producer margins.

Fiscal FY 2020-2021 could see Ebitda margin contracting further to reach 19-21 per cent largely due to elevated energy and metal prices, says Kotak Securities.

The price of natural gas has increased due to the Ukraine-Russia conflict. This could place pressure on commodity prices, which will lead to a decrease in profitability for steel companies.

Construction-linked and consumer discretionary segments account for 54 per cent of the incremental revenue in the first quarter



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