10 Companies With Best And Worst Shot At Improving Margins This Year

Analysts expect operating margins of nearly three-quarters of Indian companies to increase in the ongoing financial year.

Of the 208 companies tracked by at least 10 analysts, 153 are expected to witness a rise, according to Bloomberg data. Stocks from cement and aviation sectors may outperform due to higher prices and lower costs. Meanwhile, earnings before interest, tax, depreciation and amortisation margin of infrastructure and capital goods is expected to decline as commodity prices rise and rupee fluctuates.

Selection Criteria

• Stocks tracked by at least 10 analysts.
• Excludes companies from banking, financial services and insurance sector.

Here’s a list of top 10 stocks that may report the highest increase and decline in Ebitda margin this fiscal.

Top 10 Likely Gainers

InterGlobe Aviation and SpiceJet

Higher ticket prices, lower fuel cost, stable currency, capacity expansion and lower base are expected to aid the margin of aviation stocks in the financial year ending March 2020. The airlines’ operating margin took a hit in the last fiscal as airfares fell due to competition, higher fuel cost and rupee depreciation.

Vodafone Idea

The margin of India’s largest telecom player is expected to rise mainly due to merger synergies. Vodafone India Ltd. and Idea Cellular Ltd. completed its merger on Aug. 31 and has seen a surge in its margin since then. In the fourth quarter of the 2018-19, the combined entity’s Ebitda margin stood at 15.2 percent. For the merged company, FY20 will be the first full year to witness merger benefits.

NTPC

A low base in the last financial year, coupled with better operational efficiency, capacity additions and reduction in fixed cost under-recoveries due to increased coal stocks may aid NTPC’s margin in the financial year 2019-20.

Star Cement

Capacity expansion, higher demand after election season, rising cement prices and lower cost may boost its margin. The ongoing capacity expansion of Star Cement—a market leader in the Northeast—is expected to commission by December. Costs of the company rose in the last financial year due to lack of freight cost subsidies and higher coal and crude prices.

Top 10 Laggards

JSW Energy

Volatile imported coal prices, lower merchant sales (spot realisations) and rupee depreciation may deter JSW Energy’s margins in the ongoing fiscal. Spot realisations could be lower due to a supply glut.

Nalco

Nalco’s operating margin may take a hit this year as aluminium and alumina prices fall, and volume growth slows as the company is operating at peak output. An increasing wage bill only adds to its woes. Restart of Alunorte refinery in Brazil and supply disruptions in China pose a risk to alumina prices.

NMDC

NMDC may report lower operating margin in this fiscal as costs are expected to rise due to commissioning of a new steel plant, iron ore prices may fall on account of excess domestic supply and upcoming mine auction, and the full-year impact of Donimalai mine shutdown.

KNR Constructions

High base and rising commodity prices are expected to weigh on KNR Constructions’ margin this fiscal. In 2018-19, completion of engineering, procurement and construction projects and greater contribution from irrigation business helped the company report an increase in margin. Generally, when EPC projects are completed, excess provisions made in earlier quarters are reversed, resulting in higher margin.

Bharti Infratel

The tower operator may report a decline in Ebitda margin this fiscal on account of lower tenancies due to consolidation in the sector and weaker balance sheet of telecom players.

The reasons for increase and decline in Ebitda margin are compiled from the research notes of Jefferies, HDFC Securities, IIFL, Antique Broking, SBICAP, Nomura, Morgan Stanley and Emkay Global, among others.