How Rising Input Costs Are Weighing On India Inc.’s Operating Margin
Aggregate Ebitda margin of BSE500 firms, excluding financials, has contracted 54 basis points in the last four quarters.
India Inc.’s operating margin contracted at least for four quarters in a row as input costs rise.
The aggregate Ebitda margin of BSE500 companies, excluding financials, has narrowed 54 basis points since the quarter ended December 2020, according to Bloomberg data.
“A recovery in global demand and supply disruptions have been pushing up prices of raw materials, including metals, plastics, and electrical components,” CARE Ratings Ltd. said in a Nov. 15 report. “Volatility in international crude oil prices could also weigh on the overall wholesale inflation in the near term.”
Inflation, as measured by the Wholesale Price Index, has jumped fivefold between January and October this year. Prices of manufactured products, fuel and power also surged on an annual basis. Bloomberg forecasts WPI inflation to average at 9.8% in FY22.
Energy and base metals, too, turned costlier. The Bloomberg Commodity Index—that covers oil, natural gas, copper, zinc, and other commodities—has surged close to 23% so far in 2021.
Aggregate raw material costs as a percentage of sales for BSE500 companies (excluding financial and services industry) have risen from 38.36% in the quarter ended December to 41.76% in July-September 2021.
Even as domestic demand improved with easing Covid-19 restrictions, not all companies were able to pass on the higher costs, hurting margins.
Among the BSE500 companies BloombergQuint analysed, 28 companies saw a consistent increase in the raw-material-cost-to-sales ratio in the past three quarters, while five reported a decline.
Selection Criteria
BSE500 stocks considered.
Financial and service industry stocks excluded.
Asian Paints Ltd., Schneider Electric Infrastructure Ltd, Ratnamani Metals & Tubes Ltd., MRF Ltd. and Escorts Ltd. are the top five stocks among the 28 that witnessed the most increase in the raw materials-to-sales ratio between March- and September-ended quarters.
Triveni Turbine Ltd., KPR Mill Ltd., and Minda Corp. are among the top five stocks that witnessed a decline in the raw material-to-sales ratio.