June results show op profit margins high even as profits sank: CARE Ratings

Companies had higher operating margins even as profits sank in the June quarter, according to CARE Ratings.

Lower raw material costs and a cut in other kinds of expenditure, including electricity, helped improve margins, showed numbers from a CARE Ratings report. 

The numbers looked at the aggregate performance of 1,435 companies excluding those from the banking and finance sectors. 

The improvement in margin is only at the operating level. The net profit margin, which takes into account costs like taxes; is down to two per cent. 

Companies have lower leverage over costs that are not at the operating level. Operating profit overall fell 28 per cent for the sample. Profit after tax was down 82.2 per cent compared to the same quarter last year. Margins have also moved accordingly (see chart 1).

Many key items of expenditure showed decline. (see chart 2). 

Raw material cost was down 51.6 per cent. Selling and distribution expenses fell 34.5 per cent. Money spent on electricity and to cover fuel costs was down by 34.2 per cent.   

“Operating profits of the sample companies contracted ...However, operating profit margins of these companies have improved,” said the September 4, Care Ratings Economics report authored by Associate Economist Sushant Hede.