India Inc’s performance at T2FY22 was exceptional, although operating margins were slightly under pressure. Despite commodity inflation – up nearly 500 basis points year on year – strong revenue growth has allowed companies to post fairly good profit margins. Of course, they have also reduced expenses where possible or passed on higher input costs to consumers. Most companies topped or matched analyst estimates, with very few disappointments. Although the numbers are coming off a weak base, revenue growth has nonetheless been impressive. There has clearly been a rebound in demand in the local economy. This, together with a recovery in the global economy, has helped exporters; it has long been one of the best areas for IT companies.
Management appears confident that business will continue to remain buoyant over the next few quarters as order books fill, hotels and malls reopen and travel resumes. The only concern is the high prices of raw materials.
During the September quarter, however, commodity inflation helped push sales up. For a sample of 985 companies (excluding banks and financials), sales increased 36% year-on-year. JSW Steel saw a 71% year-over-year increase in consolidated sales, driven by high steel prices, while SAIL’s revenue jumped 59% year-on-year.
Sun Pharma sales grew a good 12.5% year-over-year with local operations doing well. Godrej Properties recorded strong sales, a 141% year-on-year jump thanks to new projects. Asian Paints reported self-sustaining decorative product sales growth of 36% year-on-year, driven by a smart jump in volumes. Marico recorded a 22% year-over-year increase in consolidated revenue, with domestic market volumes increasing 8% while Dabur sales increased 12% year-on-year. Crompton also performed well with 14% year-on-year revenue growth, even as Lemon Tree’s revenue grew 104% year-on-year, ahead of estimates. At Indian Hotels, domestic activity had recovered to 86% of pre-Covid revenue while the international portfolio was at 62% of pre-pandemic levels.
TVS Motor revenue increased 22% year-over-year, driven by a 16% increase in average selling price. Gateway Distriparks, took an increase of Rs 1,000 / FEU in its transport tariffs to reflect recent cost increases; Concor’s mixed performance improved 10% year-on-year, above estimates. At ACC, mixed achievements increased 5% year-on-year as the company sold more premium products and benefited from a better regional mix.
However, margins were under pressure as not all companies were able to pass on higher input costs. Dabur’s consolidated gross margins declined 200 basis points year-on-year, while stand-alone EBITDA margins declined 80 basis points year-on-year. At Hindustan Unilever, gross margins contracted 140 basis points year-on-year while EBITDA margins fell 45 basis points year-on-year. At Bajaj Auto, adjusted EBITDA margin contracted 310 basis points year-on-year with lower than expected gross margins. At Havells, the price increases were insufficient to cope with the sharp rise in commodity prices leading to lower gross margins.
At JSW Steel, higher costs more than offset the better achievements and analysts point out that high coal prices could keep margins under pressure unless these are passed on. Asian Paints’ consolidated gross margins fell sharply by 965 basis points year-on-year, on the back of a sharp increase in the cost of raw materials. Nestlé’s gross margins fell 240 basis points year-on-year due to higher prices for raw materials, edible oils and packaging materials.