Companies’ Revenues Rise, Profits Go Down: Report
As compared to the revenue growth, a low profit growth states that companies are not completely able to pass on higher input costs to consumers. A at around 355 companies declared their July-September numbers which reported a rise in revenue by 20.5 per cent. This made it the seventh consecutive quarter of double-digit growth. The commodity prices moderation may ease input cost pressures and the margin performance too may show corrections. This may occur as more companies from the manufacturing sector release their results
According to a report by a media house, the initial trends in Q2 corporate results witnessed sustained revenue growth in double-digit and a slow surge in net profit in single-digit year-on-year. The revenue growth was backed by Inflation and pent-up demand however, input cost pressures have pulled down the operating profit margins.
As compared to the revenue growth, a low profit growth states that companies are not completely able to pass on higher input costs to consumers. A at around 355 companies declared their July-September numbers which reported a rise in revenue by 20.5 per cent. This made it the seventh consecutive quarter of double-digit growth.
However, comparatively a modest net profit growth was witnessed at 5.6 per cent, being the slowest in the nine quarters. During previous in the same quarter, revenue and profit surged by 23.3 per cent and 22.8 per cent, respectively. A slow growth in profitability may impact tax revenues.
Last year in the September 2022 quarter, the total sample’s operating margin decreased by 500 basis points (bps) to 19.5 per cent. On the other hand, the raw material cost as a percentage of revenue hiked by 250 bps to 23.8 per cent year-on-year.
The commodity prices moderation may ease input cost pressures and the margin performance too may show corrections. This may occur as more companies from the manufacturing sector release their results.
However, majorly banking and finance companies and Reliance Industries, have been driving the second-quarter performance so far. Amid lower provisioning requirements and higher interest rates Banks have shown good profit growth. The scenario will be clearer in mid-November after few more companies from diverse sectors announce their earnings.
The corporate sector currently is deleveraged, however companies with huge liquidity will invest subject to demand being durable. Less responsive global demand and the shrinking of financial conditions will hamper the exports. This concludes that domestic demand is required to be robust.
The small and medium industries with utmost need of working capital will be hurt the most due to higher interest rates. Hence, a cautious approach needs to be considered in order to prevent investment slowdown. Government of India’s consistent push to capex and improving pace of project execution will surge demand which will help India Inc’s revenue to grow.