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Tuesday, November 30, 2021

High input cost but profits remain strong

Despite raw material inflation — up nearly 500 basis points year-on-year — strong revenue growth has enabled companies to report fairly good profit margins.

By: ENS Economic Bureau | New Delhi |
November 8, 2021 3:53:02 am
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 India Inc performance, raw material inflation, economy news, indian express newsIndia Inc performance, raw material inflation, economy news, indian express news 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 per cent y-o-y. JSW Steel posted an increase in consolidated sales of 71 per cent y-o-y, on the back of high steel prices while SAIL’s revenues jumped 59 per cent y-o-y.

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.

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