Input cost hike compresses India Inc's margin by 213 bps in Q1: Report

India Inc saw a 39% jump in top lines during April-June quarter but their operating margins declined 213 basis points to 17.7% due to input cost inflation, said a report

India Inc saw a 39 per cent jump in top lines during April-June quarter but their operating margins declined 213 basis points to 17.7 per cent due to input cost inflation, a report said on Monday.

While companies passed on higher input costs in the form of commodity and energy cost, leading to revenue growth, the same led to margin compression, rating agency Icra said in a note based on the analysis of 620 listed companies, excluding financial sector entities.

Margin compression was attributed to the supply chain disruptions triggered by the war in Ukraine.

The report expects margins to recover from the second half.

The sample 620 companies reported an aggregate revenue growth of 39.1 per cent on-year in the June quarter, which was optically aided by the low base of the previous year impacted by the second wave of the pandemic. Another major reason for the massive growth is price hikes across several sectors, the agency said.

But sequentially, the top line grew by 1.5 per cent and the trends varied across sectors.

According to Kinjal Shah, vice-president and co-group head at the agency, demand revival after the second wave of the pandemic led to the sharp rally in prices of most commodities especially metals to multi-year highs in FY22, exerting pressure on margins.

The price pressure headwinds continued in the first quarter and impacted the margins. Consequently, operating profit margin declined by 213 basis points to 17.7 per cent during the period.

Several sectors also faced rural demand softening, which impacted both revenue and margin to an extent, the report said.

In terms of industry-wise performance, while sectors like hotels, power, retail and oil & gas reported significant sequential growth in revenue in Q1, a few sectors like airlines, construction, capital goods and iron & steel saw revenue declines.

Sequential growth was most pronounced in energy-oriented sectors such as oil & gas, power, and also hotels, with both volume and realisation growth supporting revenues in the quarter.

On the other hand, FMCG reported modest single-digit growth, primarily led by price hikes undertaken to offset the input cost inflation, while volume growth was subdued.

According to Sruthi Thomas, assistant vice-president & sector head at the agency, while credit metrics remained at an adequate level in Q1, marginal improvement is likely going forward given the recent trends in softening of commodity prices, falling energy cost along with easing of supply chain constraints.