Indian businesses see margins shrink in Q3 for first time in three years
Profit margins of India’s businesses in the organised market dropped during the third quarter of the 2022 financial year for the first time in three years, due to increasing raw material costs and decreasing volumes.
Corporate profitability, in terms of earnings before interest, tax, depreciation, and amortisation, saw margins drop by 100 to 120 basis points year-on-year in the financial quarter which ended on December 31, 2021, according to consumer ratings agency Crisil’s analysis of 300 Indian businesses (not including the financial, oil, and gas sectors), accessed by TNN. The 300 companies’ EBITDA dropped by 70 to 100 basis points sequentially in the same time period.
Export-linked businesses saw their margins decrease significantly by 200 to 250 basis points during the third quarter and consumer discretionary segments’ basis points fell by 130 to 150. However, although increasing raw materials costs led to decreased profitability, inflation also meant that consumer prices soared in numerous sectors which has driven up corporate revenue.
With the third wave of Covid-19 fully in swing across India, states are introducing their own retail restrictions and lockdown measures. Depending on how long these measures, ranging from weekend curfews to 50% capacity regulations, remain in place, the spread of Omicron could further harm profitability in the fourth quarter of the 2022 financial year, especially for businesses in the ‘non-essential’ sectors.
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