June quarter numbers of the Nifty companies show sustained contraction in operating and net profit margins of the top blue-chip companies. For a second consecutive quarter, operating profit margin, a gauge of company’s operating efficiency, contracted 2% y-o-y for the Nifty companies (excluding those from finance and oil marketing domains). The net profit margin, also slid for a second quarter by 1.8%, compared with the previous year. Muted other income and a sequential decline in revenue were the key reasons for the contraction even as raw material and interest expenses demonstrated a slowing yoy growth compared to last four quarters.
In the first quarter of 2012-13, at 16.7%, the topline witnessed its weakest y-o-y growth in more than four quarters while sequentially it shrunk nearly 6%, higher than the last sequential decline reported during the June 2011 quarter.
As per Citi, sales momentum for the June quarter confirms a pronounced downtrend which it says is ?reflective of slowing GDP and India Inc’s shift from growth to profitability?. The brokerage house expects the earnings growth to maintain a trend it has observed in the last six quarters, that of a range bound movement to sustain over FY13 and FY14.
For three months to June, the other income of the top largecaps (Nifty ex-fin, ex-OMC) shrank by nearly 3% yoy, further weighing on the net profit margin. Collectively, the net earnings of the Nifty companies fell 1% compared to the same period last year and observed a sequential decline of 11%. Adjusted profit of the sample however remained flat.
