India Inc's margins woes may be over: Crisil

Crisil Research believes downward pressure to Ebitda margins limited

Crisil Research today said the worst may be over as far as India Inc's operating margins are concerned as there is only limited risk of any further material downside. The independent research firm said that the Ebitda (earnings before interest, tax, depreciation and amortisation) margins are close to their bottom.

“With commodity prices softening and and weak rupee continuing to support realisations of export-oriented sectors over the next couple of quarters, Ebitda margins are expected to rebound after falling continuously for the last nine quarters,” Crisil Research said in a press release.

Ebitda margins are likely to increase by 20-40 basis points (bps) year-on-year in the September 2012 to about 18.5 per cent.

Mukesh Agarwal, president, Crisil Research said, “We believe that revenue growth will sustain at around 15 per cent, while cost pressures are expected to gradually ease out. The sectors such as cement, power, steel, tyres and textiles are expected to benefit on account of sharp decline in price of commodities like coal, rubber and cotton. Moreover, rupee depreciation will continue to boost margins of IT services and pharmaceutical sectors.”

Added Prasad Koparkar, senior director.  Crisil Research, “Improvement in corporate profitability will be led by sectors such as IT services, pharmaceuticals, coal, airlines, tyres and sugar, which are expected to witness more than 150 bps y-o-y expansion in Ebitda margins. Furthermore, for sectors like telecom and petrochemicals, the extent of margin decline y-o-y will be slower compared to the last few quarters due to easing cost pressures.”

Crisil Research, however, feels any further weakening of demand due to political instability, sharp slowdown in the global economy and adverse movement in input costs could put some pressure on margins.

For the universe of 280 companies analysed by the firm, operating margins had declined by 100 bps year-on-year in the quarter ended June 2012 led by sectors like coal, petrochemicals, power, telecom, commercial vehicles and shipping.