As per a report by Icra Ratings, Indian companies operating profit margin narrowed by a 2.37 per cent in the Oct-Dec quarter of FY24 to 16.3 per cent on an annual basis due to inflation and rising energy costs. When viewed sequentially, the operating profit margin for Q3/FY23 expanded by 1.80 per cent over Q2/FY23. The report attributed the same to the easing in input costs and also price hikes by many companies. In the coming months, while price hikes and sequential input cost reductions can boost margins in the near term, geopolitical tensions, recessionary concerns, and forex volatility continue to pose risks, the agency said.
Barring the financial sector, revenue of other sector companies grew 17.2 per cent with sub-sectors like hotels, oil and gas, auto, airlines, and power leading the way. However, the revenue growth was a muted 1.4 per cent from a sequential perspective due to inflationary headwinds weighing on consumer sentiments.
The report further stated that India Inc’s ability to improve earnings will be dependent on headwinds such as energy cost inflation, evolving recessionary trends in the developed markets, and impact of fluctuations in foreign exchange on both imports as well as export-oriented sectors. The interest coverage ratio for the agency’s corporate sample adjusted for sectors with relatively low debt levels like IT, FMCG and pharma witnessed a moderation in Q3/FY23 to 4.3 times from 5.1 times on a sequential basis. This was mainly on account of lower earnings in select sectors as compared to historic trend and higher interest rates.