India Inc reported a 39% increase in headlines in the April-June quarter, but operating margins shrank 213 basis points to 17.7% due to cost inflation inputs, according to a report released Monday.
While companies have passed on rising input costs in the form of raw material and energy costs, driving revenue growth, it has also squeezed margins, ratings agency Icra said in a rating based on the analysis of 620 listed companies, excluding financial sector entities.
The margin squeeze was attributed to supply chain disruptions triggered by the war in Ukraine.
The report expects margins to recover from the second half.
The 620 companies in the sample reported overall revenue growth of 39.1% year-on-year in the June quarter, which was optically helped by the low base of the previous year hit by the second wave of the pandemic. Another major reason for the massive growth is rising prices in several sectors, the agency said.
But sequentially, revenue was up 1.5% and trends varied from sector to sector.
According to Kinjal Shah, Vice President and Co-Group Head at the agency, the recovery in demand after the second wave of the pandemic has led to the sharp rise in prices for most commodities, especially metals, to multi-year highs in FY22, putting pressure on margins. .
The headwinds of pricing pressure continued into the first quarter and impacted margins. As a result, operating profit margin decreased by 213 basis points to 17.7% during the period.
Several sectors also faced a slowdown in rural demand, which impacted both revenue and margin to some extent, according to the report.
In terms of sector performance, while sectors like Hospitality, Power, Retail and Oil & Gas saw significant sequential revenue growth in the first quarter, a few sectors like Airlines, construction, capital goods, and iron and steel saw their revenues fall.
Sequential growth was most pronounced in energy-focused sectors such as oil and gas, power, as well as hotels, with volume and realization growth supporting revenue during the quarter.
On the other hand, FMCG grew in the mid-single digits, mainly driven by price increases undertaken to offset input cost inflation, while volume growth was moderate.
According to Sruthi Thomas, assistant vice president and sector head at the agency, while credit metrics remained at an adequate level in the first quarter, a marginal improvement is likely to go ahead given recent trends. easing commodity prices, lower energy costs and easing supply chain constraints.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)