New Delhi: India Inc’s operating profit margin declined sharply by 2.37 per cent year-on-year to 16.3 per cent in the December quarter due to inflation and rising energy costs, a domestic rating agency said on Monday. When viewed sequentially, operating profit margin for the December quarter widened to 1.80 per cent over the previous September quarter, Icra Ratings said, attributing this to reduction in input costs and price hike by several companies.
Going forward, while price increases and sequential input cost reduction could prop up margins in the near term, geopolitical tensions, recession concerns and foreign exchange volatility will continue to pose risks, the agency said. Excluding companies in the financial sector, corporate revenue rose 17.2 per cent, which was as expected, led by the hotels, oil and gas, auto, airlines and power sectors, the agency said.
However, revenue growth was lower at 1.4 per cent from a sequential perspective due to headwinds in inflation weighing on consumer sentiments. Its sector head Shruti Thomas said, “India Inc’s earnings improvement potential will depend on the impact of energy cost inflation, bearish trends in developed markets and foreign exchange fluctuations.” Said.
The interest coverage ratio for the adjusted agency sample for sectors with relatively lower debt levels such as IT, FMCG and pharma improved to 4.3x from 5.1x in Q3FY23 on a quarterly basis. This was primarily due to lower earnings in select sectors than the historical trend and higher interest rates.
According to Thomas, given recent trends of softening commodity prices, general price increases by corporates, and reduction in energy costs, credit metrics are likely to show a gradual improvement going forward.