Despite inflation in the inputs, Indian Inc. seems to be able to reasonably maintain its margins with consumer spending. Not all companies were able to take the price increase to offset the full increase in costs, but the overall number of Q4FY22 shows that they have covered some space.
For a universe of 927 companies (excluding banks and finance), operating profit margins have shrunk by just 50 basis points to 16.37% in the three months to March. As a result, operating profit increased a good 20% annually and net profit a handsome 34%.
The management comment suggests that companies plan to offer smaller volumes for the same price either to raise prices further or to maintain margins. Roughly speaking, consumer prices have risen by 5-15% for major products, 10-12% for durable goods, about 10% for automobiles, 5-15% for residential properties and about 5-8% for fast food meals. By increasing costs, companies have been able to increase their top lines despite selling smaller volumes in many cases. For a sample of 927 companies, net sales increased 24.2% in Q4FY22.
For example, Hindustan Unilever has raised prices by about 10%, enabling it to report an 11% yoy growth in Q4FY22 despite the volume being flat. Despite a 9% annual decline in volume, Eicher Motors has increased revenue by 9%, thanks to an increase in average selling price (ASPs) of 21% yoy. In Bajaj Auto, Ebitda margin decreased by 80 bps per year despite price increase Tata Steel’s margins were soft in Q4FY22 but management expects better realization to offset cost inflation in the current quarter.
Asian Paints’ gross margin decreased by 450 bps per year as the company was able to partially offset higher raw material costs with only a 22% year-over-year price increase. Again, profit margins at JSW Energy were a decent one because higher realizations of 4% yoy were insufficient to offset higher costs of production, which increased by 23% year on year.
While profitability may be under some pressure, the good news is that businesses that were affected by the epidemic are recovering as the economy opens. AB Fashion and Retail, for example, reported better-than-expected Q4FY22 revenue growth of 25% year-over-year as the distributor channel recovered. Avenue Supermarkets boosted its same-store sales growth and added 18% year-over-year Q4FY22 revenue, driven by the contribution of 21 new stores added to the quarter. However, big ticket sales were a bit low. In Titan, for example, jewelry sales were flat, which was affected by the volatility of gold prices.
Commodity gives players a somewhat slanted number of strong shows and some change performance. Excluding Reliance Industries, Tata Steel, Tata Motors and Adani Power, profit growth slowed to 21.6% from 34%; The four together account for 20.2% of the sample income. Tata Motors reduced its losses in Q4FY22 to Rs 1,033 crore from Rs 7,605 crore in Q4FY21, while Tata Steel increased its growth by 47% yy. Adani Power has made a net profit of Rs 4,645.47 crore as against Rs 13.13 crore a year ago.