The story has been somewhat the same for others companies, too. A study of the results for a pack of 2,500 companies shows that while the increase in net sales, for the three months to March 2010, has been a fairly impressive 30% year-on-year, albeit on a low base, profitability has weakened. Commodity players have among been the biggest gainersiron ore producer NMDCs March quarter numbers were boosted by higher price realisations with net sales up 25% sequentially. But, users of metals have been hurt and as such the operating profit margin for the sample has dropped by nearly 270 basis points year-on-year, thanks to the higher cost of raw materialsup 730 basis points year-on year. Thats not surprising because prices of most commodities have been high over the past year and have started trending down only in the last couple of months.
Tata Teas profitability was hit by a sharp rise in raw material costs; input costs were up 40%. While the company did raise prices like its peers, it lost out because consumers downtraded and the operating profit margin slipped by about 200 basis points. The Street believes some amount of margin erosion to continue. As Andrew Holland, CEO, Ambit Capital, points out margins could continue to remain under pressure. However, Kenneth Andrade, Head, Equities at IDFC Securities feels that prices of some commodities are coming off and therefore given that demand is steady, it should not be too difficult for companies to sustain margins at these levels. The growth in the top line shouldnt be an issue, he observes.
The bottom line growth for the sample, of nearly 36% year-on-year has been buoyed byhigher other income, which rose nearly 35% and lower outflows on interest, down 19%. The weak economic environment globally has dragged down profits for India Hotel, which reported rather disappointing consolidated results for the year to March 2010. The hotel chain posted a loss of Rs 99 crore; while Citigroup had expected the numbers to be weak, the firm didnt meet even the muted expectations. ITC saw a 31% increase in revenues, despite the higher taxes levied on cigarettes.