MUMBAI: High commodity prices, particularly energy and metals, could dent the fourth quarter profitability of corporate India (ex oil and gas and financial services sectors ) both sequentially and yaer-on-year with companies being unable to pass on prices fully, as per global analytics firm Crisil and Yes Securities’ research.
Crisil analysis of over 300 companies shows average operating profit (EBITDA) margin likely declined 200 -300 basis points (2-3 percentage points) year over year and 40-60 bps (0.4-0.6 percentage) sequentially in Q4 FY22. Yes Securities projects operating margins (ex financials and oil marketing companies ) are expected to contract by 27 bps sequentially and 97 bps on a YoY basis.
“Companies were unable to fully pass on soaring input cost, especially prices of key metals and energy,” said Hetal Gandhi, director, Crisil Research. Making matters worse , Crisil points that EBITDA margin could contract another 100 bps on-year to 20-22% in the current fiscal (FY23) due to elevated energy and metal prices.
Crisil’s Gandhi adds, “The Ukraine-Russia conflict has sent crude and natural gas prices soaring. Further, trade across metals such as steel may experience uncertainty amid the crisis, which will lead to elevated prices of commodities and hence continued pressure on profitability.”
Q4 margins in construction-linked sectors are likely to have fallen the most at 500-600 bps, followed by exports-linked and industrial commodity sectors where margins eroded 400 bps on year. Yes Securities observes that for financials , net interest income growth is likely to be the strongest in the past eight quarters.