NEW DELHI: Even as Indian equity markets remain steady on expectation of strong corporate earnings in the third quarter, companies across sectors may see subdued profit growth and drop in profit margins.
Rating agency Crisil estimates that earnings before interest, taxes, depreciation and amortisation (EBITDA) margins likely dropped 100-120 basis points (bps) year-on-year and 70-100 bps sequentially in the third quarter ended December 31, 2021.
Crisil estimate is based on analysis of performances of 300 companies (excluding those in the financial services and oil and gas sectors). As many as 27 of 40 sectors tracked by CRISIL Research are likely to see their Ebitda margins shrinking.
In terms of sectors, it estimates that margins in consumer discretionary are likely to fall 130-150 bps, and in export-linked by 200-250 bps. Information technology services likely saw margins contract 230-250 bps due to increased sub-contracting, while steel products and pharmaceuticals may log a contraction of 110-130 bps each due to rising input cost.
According to Nomura, the consumer durables sector is likely to witness a 2 per cent y-o-y drop in Ebitda while Ebitda margins are likely to decline by 110 bps on rising commodity costs. Though the sector may see a 7 per cent revenue growth.
On the profitability of IT sector companies, Nomura in a recent report said that rising attrition and strong headcount additions pose near-term risks to margins. However, it believes supply side-led margin pressure would be transient.
Most auto companies are likely to see year-on-year margin contraction barring those with higher exposure to exports. Brokerage firm Centrum expects Y-o-Y margin contraction for all auto firms except TVS Motors and Ashok Leyland.