India Inc's margin woes might be over: CRISIL

CRISIL Research on Thursday said as far as India Inc’s operating margins were concerned, the worst might be over, adding earnings before interest, tax, depreciation and amortisation (Ebitda) margins had bottomed out.

“With commodity prices softening and the weak rupee continuing to support realisations of export-oriented sectors over the next couple of quarters, Ebitda margins are expected to rebound, after falling continuously for the last nine quarters,” CRISIL Research stated in a press release. It believes in the September quarter, on an average, Ebitda margins would improve by 20-40 basis points (bps) to about 18.5 per cent, on a year-on-year basis.

“We believe revenue growth would be sustained at about 15 per cent, while cost pressures are expected to gradually ease out,” said Mukesh Agarwal, president, CRISIL Research. Agarwal expects sectors like cement, power, steel, textiles and tyres to benefit from the sharp decline in the prices of coal, rubber and cotton. The depreciation in the rupee would continue to boost the margins of companies in the information technology (IT) and pharmaceutical segments, he said

Prasad Koparkar, senior director at CRISIL Research, says sectors like IT, pharmaceuticals, coal, airlines and tyres might record a 150-basis point rise in operating margins in the September quarter. “For sectors like telecom and petrochemicals, the extent of the margin decline would be slower compared to the last few quarters, owing to easing cost pressures,” he said.

In the quarter ended June, on an average, operating margins of the 280 companies analysed by CRISIL Research had declined by 100 basis points annually.

The research firm, however, feels any further weakening of demand due to political instability, a sharp slowdown in the global economy and adverse movements in input costs could exert some pressure on margins.