Crisil Research expects corporate profitability to be under pressure in January-March 2011 quarter (Q4 FY11) due to rising raw material costs and increased competition.
"Based on an analysis of the aggregate financial performance of select companies (excluding the oil refining and marketing companies) across 23 industries, revenue growth is expected to be higher on a year-on-year (y-o-y) basis, while operating profit margins (OPMs) are forecast to be lower," said CRISIL in a report released on Monday.
During Q4 FY11, the rising costs of inputs are likely to put pressure on the margins of automobile manufacturers as well as cement producers. In IT services too, margins are expected to remain under pressure on a y-o-y basis due to the appreciating rupee and wage inflation, it says.
The rating agency also expects the operating profit margin to decline to around 22-23% in Q4 FY11, from 26.1% in the same period last year.
"Revenues, which grew by 22.4% y-o-y in October-December 2010 (Q3 FY11), are likely to decelerate to 20-21% in Q4 FY11. The expected growth in revenues is significantly higher than the 13.7% growth witnessed in January-March 2010 (Q4 FY10)," it says.
On the positive side, the anticipated increase in steel prices and strong demand would offset the impact of rising input costs for steel players, for whom margins are expected to improve in Q4 FY11.
Similarly, for yarn manufacturers, operating margins are likely to remain stable, as players would pass on the rise in raw material costs to consumers by hiking product prices and altering the raw material mix by using more of polyester.