The March quarter report card of corporate India seems to be have an evident impact of higher raw material and interest costs. The operating performance of large-cap companies was affected by higher raw material costs while mid-cap companies felt an eminent impact of higher interest cost with the net margins declining substantially against a flatter net margins for largecap companies.
An analysis of 75 largecap and 82 midcap companies that came out with their Q4 results on or before May 12 points to a y-on-y 311 basis points fall in the net profit margins of midcap companies against a flat gain of 5 basis points in the net profit margin of large caps.
The decline in net margins was a result of a more than 60% y-o-y jump in the interest cost of the mid-cap companies for the March quarter. Large-cap companies were able to hold on to their existing margins despite a 37% increase in the interest cost for Q4.
Nevertheless, on the operating margin front, the mid-caps managed to stand their ground with a yoy gain of 465 bps for the quarter while the large-caps experienced a decline of about 110 bps during the same period. The growth in raw material costs of large-caps at 35% for the quarter was double that of mid-cap companies.
The operating performance of large-caps which generally have big production capacities tend to get affected by higher raw material costs. On the other hand mid and small size companies that broadly have to raise capital at a higher interest rate, see a decline in their net profits in a high interest rate environment. The increase in working capital requirement further jacks up their interest cost compared to large-caps.
For the analysis we bifurcated the set of companies as per market-cap; companies with a market-cap of more than R5000 crore were deemed as large-caps while companies with a market cap between R2000 to R5000 crore were seen as mid-caps.
During the quarter the large-caps showed a 23% growth in the topline compared to the same quarter last year. Mid-caps showed a revenue growth of 14% during the quarter. The BSE mid-cap outperformed of its large-cap counterparts since the start of result announcements. Since April BSE mid-cap has given a return of 0.4% against a decline of 3% to 5% of BSE-200, Nifty and Sensex.