India Inc's margins to contract further: Crisil

Corporate India is likely to witness a fall of 200 basis points (bps) in Ebitda margins in the December quarter on account of slower volume growth and higher cost of inputs, coupled with limited pricing flexibility, says a report released by Crisil Research.

While the slowdown in consumption growth and sluggish investment activity would bring down the revenue growth, the pressure on net profits would be more acute in Q3, the report says.

The year-on-year revenue growth would clock 14-15 per cent in the December quarter, compared to 22.5 per cent in the year-ago period, it says. A sharp y-o-y drop of 300-500 bps in margins is likely in sectors such as textiles, real estate and hotels, due to slower volume growth and higher raw material and wage costs.

According to the report, companies saddled with substantial debt would be further hurt by increased interest costs and marked-to-market losses reported on foreign currency debt and derivatives, thanks to a weak rupee. Net margins are, therefore, likely to decline even more sharply.

Ebitda margins for automobiles, steel, and organised retail are likely to decline 100-200 bps. Though airlines are expected to report robust volume growth, their Ebitda margins will remain under pressure, as they will be unable to fully pass on the sharp rise in fuel costs, the report says.

However, companies with substantial export earnings, such as IT services companies, bulk drug exporters and pharmaceutical companies that focus on formulations exports, and oil exploration companies with low proportion of debt on their balance sheets, stand to gain from a weak rupee.