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Corporate profitability likely fell in Q3 after 11 quarters: Crisil

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Profitability of companies in India, as defined by the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin, is believed to have dropped 100-120 basis points (bps) year-on-year and 70-100 bps sequentially in the third quarter ended December 31, an analysis by Crisil of 300 companies showed. This excludes companies in financial services and oil and gas.

“This marks the first year-on-year decline in 12 quarters,” Crisil said in the report.

“As many as 27 of 40 sectors tracked by Crisil Research are likely to see their EBIDITA margins shrinking,” Crisil added. However, revenue momentum was sustained, driven by price increases rather than volume growth, it said.

Consumer sector

Margins in the consumer discretionary sector likely fell 130-150 bps year-on-year, while in export-linked sector the drop is believed to be between 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 costs, according to the report.

Costs not passed

“Companies were unable to fully pass on soaring input costs, especially key metals and energy prices,” said Hetal Gandhi, director, Crisil Research.

“Flat steel prices were 48% higher year-on-year in the third quarter, while aluminium was up 41%.”

“The price of Brent crude surged nearly 79%, while those of spot gas and coking coal rocketed almost 5.4 and 2.4 [times], respectively, year-on-year,” she said.



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