Companies see margin pressure amid high input cost even as top line, bottom line remained strong in Q2

The majority of listed companies reported improvement in their top line and bottom line during the July-September quarter of this financial year (April 2021-March 2022), Care Ratings said in its Q2 performance report. The phenomenon was seen in the companies from the broader markets and also index heavyweights. The earnings season is over now.

The rating agency has analysed the quarterly earnings results of 2113 companies covering around 40 industries and spanning over last five quarters. It has also analysed the pre-pandemic crisis which lasted till the end of the September 2020 quarter.  

The companies have shown improvements in both sequential and annual basis as well as over the pre-crisis period, it said, adding further that the net sales volumes at the aggregate level have surpassed the pre-pandemic period along with operating profit and net income in Q2. 

Though the companies have reported an improvement in the profit and revenues, many companies witnessed pressure in the operating profit margins mainly due to by high raw material and input costs, Care Ratings said in the report. 

The micro-companies having net sales of under Rs 5 crore have witnessed a decline in sales volumes in the latest two quarters, the report pointed. “The sales volume of these companies remains well below the levels of Jul-September 2019 (by over 70 per cent).”

The service sector, especially the travel and high contact intensive segment revenues have trailed that of the manufacturing sector, finance and IT services during the quarter, Care Ratings also said. 

In terms of sectors, corporate performance in the quarter gone by was steered by energy, finance, iron & steel, IT, power, automobiles and telecom, the Care Ratings said in the report. 

The year-on-year growth in net sales has been lower than the growth in raw material prices for most industries. At the aggregate level, while the growth in net sales (YoY) in Q2 FY22 was 36 per cent, the increase in raw material prices was 53 per cent, the rating agency pointed out in the report.

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