Corporate Report Card: India Inc’s profits remain strong despite high input costs

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November 08, 2021 4:00 AM

In the September quarter, however, commodity inflation helped drive up the topline. For a sample of 985 companies (excluding banks and financials) sales were up by a strong 36% y-o-y.

Managements appear confident business will continue to remain brisk in the coming quarters as orderbooks fill up, hotels and malls re-open and travel resumes. The only worry is the elevated prices of commodities.Managements appear confident business will continue to remain brisk in the coming quarters as orderbooks fill up, hotels and malls re-open and travel resumes. The only worry is the elevated prices of commodities.

It’s been a stellar performance from India Inc in Q2FY22 even if operating margins have been under slight pressure. Despite raw material inflation — up nearly 500 basis points year-on-year — strong revenue growth has enabled companies to report fairly good profit margins. To be sure, they have also cut expenses where possible or passed on higher input costs to consumers. Most companies have beaten analysts’ estimates or matched them, with very few disappointments. While the numbers come off a weak base, topline growth has been nonetheless impressive. There has clearly been a rebound in demand in the local economy. This together with a revival in the global economy has helped exporters; it has been one of the best quarters for IT companies, in a long time.

Managements appear confident business will continue to remain brisk in the coming quarters as orderbooks fill up, hotels and malls re-open and travel resumes. The only worry is the elevated prices of commodities.

In the September quarter, however, commodity inflation helped drive up the topline. For a sample of 985 companies (excluding banks and financials) sales were up by a strong 36% y-o-y. JSW Steel posted an increase in consolidated sales of 71% y-o-y, on the back of high steel prices while SAIL’s revenues jumped 59% y-o-y.

Sun Pharma’s sales were up a good 12.5% y-o-y with the local business doing well. Godrej Properties reported strong sales, a jump of 141% y-o-y led by new projects. Asian Paints reported a stand-alone revenue growth in decoratives of a smart 36% y-o-y, on the back of a smart jump in volumes. Marico posted a 22% y-o-y increase in consolidated revenues as volumes in the home market went up 8% while at Dabur sales were up 12% y-o-y. Crompton too fared well reporting a top line growth of 14% y-o-y even as Lemon Tree’s revenues, were up 104% y-o-y, ahead of estimates. At Indian Hotels, the domestic business had recovered to 86% of pre-Covid revenues while the international portfolio was at 62% of pre-pandemic levels.

TVS Motor’s topline rose a smart 22% y-o-y led by a 16% increase in the average sales price. Gateway Distriparks, took a Rs 1,000/FEU hike in its transportation rates to pass on recent cost increases; blended realisations at Concor improved by 10% y-o-y, above estimates. At ACC, the blended realisations were up 5% y-o-y as the company sold more premium products and enjoyed a better regional mix.

However, margins were under pressure as not all firms were able to pass on the rising input costs. Consolidated gross margins at Dabur were down 200 bps y-o-y while stand-alone Ebitda margins shrank 80 bps y-o-y. At Hindustan Unilever, gross margins contracted 140 bps y-o-y while Ebitda margins fell 45 bps y-o-y. At Bajaj Auto, the adjusted Ebitda margin contracted 310 bps y-o-y with gross margins weaker than expected. At Havells, the price hikes were insufficient to match the sharp rise in prices of raw materials resulting in lower gross margins.

At JSW Steel, higher costs more than offset the better realisations and analysts point out high prices of coal could keep margins under pressure, unless these are passed on. Consolidated gross margins at Asian Paints fell by a steep 965 bps y-o-y, thanks to a steep increase in the cost of raw materials. Gross margins at Nestle were down 240 bps y-o-y due to costlier raw material prices of edible oils and packaging materials.

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