'Inability to pass on soaring input cost to dent Q4FY22 corp profitability'
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Inability to pass on the full price impact of soaring input cost to consumers is expected to dent the profitability margin of India Inc in Q4FY22, a report said.
As per a Crisil Research's analysis of over 300 companies, corporate profitability, or the average Ebitda (earnings before interest, taxes, depreciation and amortisation) margin, likely declined by 200-300 basis points (bps) on-year and 40-60 bps sequentially in the fourth quarter (Q4) of fiscal 2022.
This marks the second on-year decline in 12 quarters, it said.
Besides, it pointed out that Ebitda margins of as many as 32 of the 47 sectors tracked by Crisil Research are estimated to have contracted during the fourth quarter, on-year.
"For the fiscal, overall, Ebitda margin likely shrank 20-40 bps on-year to 21-23 per cent. Companies were unable to fully pass on soaring input cost, especially prices of key metals and energy," said Hetal Gandhi, Director, Crisil Research.
"In the current fiscal, Ebitda margin could contract another 100 bps on-year to 20-22 per cent, largely due to elevated energy and metal prices. The Ukraine-Russia conflict has sent crude and natural gas prices soaring. Further, trade across metals such as steel may experience uncertainty amid the crisis, which will lead to elevated prices of commodities and hence continued pressure on profitability."
Furthermore, it said that in Q4FY22, margins in construction-linked sectors likely fell the most at 500-600 bps on-year, followed by exports-linked and industrial commodities sectors, where margins eroded 400 bps on-year.
"Within the construction-linked sectors, steel products saw a sharp margin contraction of over 900 bps on-year as input cost escalation was higher than the rise in steel prices. Prices of flat steel were on average 25 per cent higher on-year in the fourth quarter, and of aluminium by 53 per cent.
"The price of Brent crude surged nearly 31 per cent, while those of spot gas and coking coal rocketed almost 1.3x and 2.8x, respectively, on-year."
In contrast, the margins of consumer discretionary services and consumer staples services and investment-linked segments expanded, albeit moderately.
"Margin expansion in consumer discretionary services was largely supported by telecom services, which is estimated to see on-year improvement of over 250 bps following tariff hikes, whereas margins of consumer staples services are estimated to have been driven by a rise in profitability in the hospital sector."
