How rising input costs weighed on India Inc.’s operating profit margin
India Inc.’s operating margin has contracted for at least four consecutive quarters as input costs rise.
The aggregate EBITDA margin of BSE 500 companies, excluding financials, has contracted 54 basis points since the quarter ended December 2020, according to Bloomberg data.
âA recovery in global demand and supply disruptions have pushed up the prices of raw materials, including metals, plastics and electrical components,â said CARE Ratings Ltd. in a November 15 report. “Volatility in international crude oil prices could also weigh on headline wholesale inflation in the near term.”
Inflation, as measured by the wholesale price index, quintupled between January and October of this year. The prices of manufactured goods, fuel and electricity have also increased on an annual basis. Bloomberg forecasts that WPI inflation will average 9.8% in FY22.
Energy and base metals have also become more expensive. The Bloomberg Commodity Index, which covers oil, natural gas, copper, zinc and other commodities, has jumped nearly 23% so far in 2021.
Aggregate raw material costs as a percentage of sales of BSE 500 companies (excluding financial and service sectors) fell from 38.36% in the quarter ended December to 41.76% in July-September 2021.
Even though domestic demand improved with the easing of Covid-19 restrictions, not all companies were able to pass on the higher costs, which hurt margins.
Among the BSE 500 companies analyzed by BloombergQuint, 28 companies have seen a steady increase in the ratio of raw material costs to sales over the past three quarters, while five have reported a decline.