Despite input inflation, India Inc appears to have managed to reasonably protect its margins by passing costs on to consumers. Not all companies were able to take price increases to offset the full cost increase, but the aggregate figures for Q4FY22 show they have made some ground.
For a universe of 927 companies (excluding banks and financials), operating profit margins contracted only 50 basis points year-on-year to 16.37%, in the three months to March. As a result, operating profit increased by 20% year-on-year and net profit by 34%.
Management’s comments suggest that the companies plan to either raise prices further or offer smaller volumes for the same price to protect margins. Broadly, prices rose 5-15% for consumer staples, 10-12% for durable goods, around 10% for automobiles, 5-15% for residential properties and 5 to 8% in fast food restaurants. By passing on cost increases, companies have been able to increase their turnover despite, in many cases, selling lower volumes. For the sample of 927 companies, net sales in Q4FY22 increased 24.2% year-on-year.
Hindustan Unilever, for example, increased its prices by around 10%, which allowed it to record an 11% year-on-year revenue growth in Q4FY22 despite flat volumes. Despite a 9% year-on-year decline in volumes, Eicher Motors reported 9% year-on-year revenue growth, driven by a 21% year-on-year increase in average selling prices (ASP). At Bajaj Auto, Ebitda margins fell 80 basis points year-on-year despite price increases. Tata Steel’s margins in Q4FY22 were lower, but management expects better realizations to offset cost inflation in the current quarter.
Asian Paints’ gross margins fell 450 basis points year-on-year as the company was only able to partially offset high raw material costs with price increases of 22% year-on-year. Again, JSW Energy’s earnings performance was modest as higher realizations of 4% year-on-year were not enough to offset the higher cost of production, which rose 23% year-on-year.
Although profitability may have been under pressure, the good news is that businesses that have been impacted by the pandemic are rebounding as the economy opens up. AB Fashion and Retail, for example, delivered better-than-expected revenue growth of 25% year-over-year in Q4FY22, thanks to the recovery of the distribution channel. Avenue Supermarts reported 18% year-on-year revenue growth in Q4FY22, driven by a resumption of same-store sales growth and the contribution of 21 new stores added during the quarter. Sales of big ticket items, however, were somewhat subdued. At Titan, for example, jewelry sales were flat, impacted by volatile gold prices.
The good performance of commodity players and some reversal performances skew the figures somewhat. Earnings growth slows to 21.6% YoY, compared to 34% if Reliance Industries, Tata Steel, Tata Motors and Adani Power are excluded; the four together represent 20.2% of the sample’s income. Tata Motors reduced its losses to Rs 1,033 crore in Q4FY22 from Rs 7,605 crore in Q4FY21, while Tata Steel posted strong 47% year-on-year growth in net profit. Adani Power recorded a net profit of Rs 4,645.47 crore against Rs 13.13 crore reported a year ago.