Data analysed by ETMarkets showed that as many as 154 companies that are part of the BSE 500, have seen operating profit growing at a faster pace than revenue in the last quarter.
Of the 154 companies, 18 of them are part of the benchmark Nifty 50, which includes Hindustan Unilever, ITC, Nestle India, JSW Steel, Bajaj Auto, Hero MotoCorp, Mahindra & Mahindra, and Dr Reddy’s Laboratories.
Companies in the banking, financial services, and insurance sectors have been excluded from the list.
During the June quarter, gross margins of most consumer staples companies saw a sharp expansion, aided by a correction in key input prices, especially crude oil and vegetable oils.
In the same quarter last year, crude oil prices skyrocketed following Russia’s invasion of Ukraine.
FMCG companies cumulatively reported an over 200 basis points expansion in operating margins on a year-on-year (YoY) basis in the June quarter, brokerage Sharekhan by BNP Paribas said.
This expansion has come despite companies increasing investments towards advertisement and promotional activities in the quarter.
Britannia Industries reported a mere 9% YoY growth in revenue for the June quarter, but operating profit increased by 36%. Similarly, Nestle India reported a 30% YoY growth in operating profit, while sales grew by over 15%.
Apart from consumer staples companies, the other sector that saw considerable improvement in the operational performance was automobiles and ancillary products makers.
Most companies reported a significant expansion in operating margin despite lower sales volumes.
Bajaj Auto reported a whopping 50% YoY growth in operating profit in the last quarter, even as sales grew by a lesser quantum of 29%. In the 4-wheeler segment, Maruti Suzuki India, the country’s largest automaker, reported a 56% growth in operating profit and a 22% rise in revenue.
Among auto ancillary makers, Sona BLW Precision saw its operating profit increase by more than 47%, faster than the 25% growth in revenue.
Endurance Technologies, another global leader in the auto component space, reported a 34% growth in operation profit, which is double the revenue growth it saw in the last quarter.
The significant improvement in the operational performance prompted analysts to raise their estimates for the sector for FY24. Brokerage IIFL Institutional Equities has increased its operating profit estimate for the automobile universe by 5.6% for the current financial year. Besides auto and FMCG, some companies in the cement space also got a breather on the cost front. Ambuja Cements reported a whopping 50% growth in operating profit in the last quarter, even as sales grew a meagre 8.5%.
Easing cost pressures also boosted the operational performance of companies in the pharmaceutical and healthcare sectors. At least 18 companies in this segment that are part of BSE 500, reported higher growth in operating profit than revenue.
Index major Cipla saw a 31% growth in operating profit, higher than the 18% growth in revenue. In the midcap space, Alkem Laboratories saw its operating profit surge over 91% on year, even as revenue grew by just 15%.
Sunny Days Back?
The financial year FY24 has kickstarted on a good note, with consensus earnings estimates seeing a marginal uptick, largely due to better profitability.
However, India Inc is not completely out of the woods and risks for a downgrade persist, believe analysts.
Inflation concerns are haunting back Dalal Street amid rising crude oil prices, and a global macroeconomic slowdown has somewhat clouded the outlook. Adding to the woes is the tightening liquidity conditions.
“We envisage earnings downgrades to accelerate, owing to tightening liquidity and weak global growth and fading benefits of lower input prices,” Nuvama Institutional Equities said in its report.
While India seems well poised for growth in the longer term, the coming months will be a real test for the economy and markets, believes Amnish Aggarwal of Prabhudas Lilladher.
“We believe high inflation can be a political hot potato in an election year, forcing the government to slow down capex,” Aggarwal said.
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