Corporate Profitability Drops for Fourth Consecutive Quarter: Crisil

Corporate Profitability is seen with a drop of 300 basis points (bps) due to higher commodity prices, Crisil said in a report.



For its part, corporate profitability — or earnings before interest, taxes, depreciation and amortization (Ebitda) margin — shrank 300 basis points (bps) year-over-year in the second quarter, marking the fourth consecutive quarter of a year-over-year decline.

The margin also shrank sequentially, albeit slightly.

EBITDA margins of 70 percent of the 47 sectors tracked by CRISIL research shrunk by year. The strongest decline was seen in the construction-related sectors, by more than 1,000 basis points year-over-year, largely due to high input costs and delays in passing those costs on to customers.

Among these sectors, EBITDA margins in steel products are likely to have contracted 1,500 basis points year-on-year as a result of higher coking coal prices and lower realizations amid a decline in flat steel prices and limited sales to the lucrative export segment.

Say Sehul BhattAssociate Director, CRISIL Research: “The increasing sales momentum is not translating proportionally into profit margins. While key commodity prices such as coking coal and crude oil have cooled sequentially, they remain high year on year, hurting corporate profits, with absolute EBITDA gains remain flat throughout the quarter, both year-on-year and sequentially. Maintaining commodity prices at current levels is key to limiting further margin contraction.”

A combination of factors such as moderate price increases and steadily increasing volumes is expected to boost operating revenues by 15 percent year-on-year to Rs 10.2 lakh crore in the second quarter of this fiscal year.

CRISIL’s analysis of more than 300 companies (excluding those in the financial services and oil and gas sectors) points out.

Of a total of 47 sectors tracked by CRISIL Research, nearly half are estimated to have outperformed total revenue growth during the quarter, with key sectors within discretionary consumer services achieving maximum year-over-year growth.

The substandard performance of the other sectors, compared to overall growth, was broadly broad-based in the construction-related products, consumer staples and industrial commodities sectors.

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