Rising raw material cost, higher interest rates to make biz environment challenging, at least for the next two quarters
Indian corporates will have to weather pressure on margins for at least another couple of quarters with raw material cost, which represents the single-largest cost component, rising to a level not seen in the last three years.
Half-way through the earnings season with over 1,150 listed firms having released their quarter to March 2011 numbers, data show that 43.7 % of India Inc’s March quarter revenue was spent on buying raw material. That is higher than what local firms were spending on raw materials even at the height of the commodity cycle in the quarter to September 2008.
Interest costs, now under control, could also worry companies and investors as it could squeeze margins further. The Reserve Bank of India, which raised key policy rates over a week ago by 50 basis points, is widely expected to raise rates further to cool headline inflation, which is close to 9 %. Indian corporates will have to weather pressures on margins for at least another couple of quarters with spurt in raw material costs.
Results announced so far show that despite inflationary pressures, Indian companies have fared well during the March quarter.
The aggregate results of 1,150 companies, which exclude banks and nonbanking finance companies, indicate that operating profit margins have actually improved in the March quarter over the preceding two quarters. This is no mean feat considering the rise in raw material costs.
What is also interesting to note is that Indian companies have focused on improving efficiencies relating to other factors of production.
Broadly, they have successfully curtailed the growth in staff and other costs, which fell to their lowest level of FY11 in the March quarter, when compared to net sales.
For Indian companies — the effective rate of tax — tax as a percentage to pretax profit — dipped to a two-year low of 23% during the March quarter.
At a time when the minimum alternate tax, or MAT — the rate at which exempted businesses have to pay tax on their book profits — has gone up, this indicates that a groswing number of companies are slipping into the red. From our sample of 1,150 companies, 319 companies, or almost 28%, posted net loss in the March quarter, which was the highest for FY11.
A full picture will emerge only after the numbers of many other large companies are unveiled. The operating environment for local firms is likely to be more challenging in the next few quarters with high inflation, which could dampen consumption demand and spending, besides higher raw material and interest costs. What this means is that investors may have to gear up for margin pressures ahead.
Indian corporates will have to weather pressure on margins for at least another couple of quarters with raw material cost, which represents the single-largest cost component, rising to a level not seen in the last three years.
Half-way through the earnings season with over 1,150 listed firms having released their quarter to March 2011 numbers, data show that 43.7 % of India Inc’s March quarter revenue was spent on buying raw material. That is higher than what local firms were spending on raw materials even at the height of the commodity cycle in the quarter to September 2008.
Interest costs, now under control, could also worry companies and investors as it could squeeze margins further. The Reserve Bank of India, which raised key policy rates over a week ago by 50 basis points, is widely expected to raise rates further to cool headline inflation, which is close to 9 %. Indian corporates will have to weather pressures on margins for at least another couple of quarters with spurt in raw material costs.
Results announced so far show that despite inflationary pressures, Indian companies have fared well during the March quarter.
The aggregate results of 1,150 companies, which exclude banks and nonbanking finance companies, indicate that operating profit margins have actually improved in the March quarter over the preceding two quarters. This is no mean feat considering the rise in raw material costs.
What is also interesting to note is that Indian companies have focused on improving efficiencies relating to other factors of production.
Broadly, they have successfully curtailed the growth in staff and other costs, which fell to their lowest level of FY11 in the March quarter, when compared to net sales.
For Indian companies — the effective rate of tax — tax as a percentage to pretax profit — dipped to a two-year low of 23% during the March quarter.
At a time when the minimum alternate tax, or MAT — the rate at which exempted businesses have to pay tax on their book profits — has gone up, this indicates that a groswing number of companies are slipping into the red. From our sample of 1,150 companies, 319 companies, or almost 28%, posted net loss in the March quarter, which was the highest for FY11.
A full picture will emerge only after the numbers of many other large companies are unveiled. The operating environment for local firms is likely to be more challenging in the next few quarters with high inflation, which could dampen consumption demand and spending, besides higher raw material and interest costs. What this means is that investors may have to gear up for margin pressures ahead.
Full Report
• Data show that 43.7 % of India Inc’s
March quarter revenue was spent on buying raw material
• Results announced so far show that despite inflationary pressures, Indian cos have fared well during the March quarter
• From our sample of 1,150 cos, 319 posted net loss in the qtr
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