Business3 min
India Inc Q2 Results: Sales Surge, But Margins Take a Hit
Revenue growth is strong across much of corporate India, yet rising input costs are squeezing profits for many companies.
Corporate India is selling more than ever, but it is keeping less of each rupee. Early results from the July-September quarter show strong top-line growth across a wide set of companies, while operating margins have taken a hit from rising raw material costs.
Across a sample of 773 companies, excluding banks and financial firms, Vedanta and oil marketing companies, net sales rose 25.08% year on year. Operating margins, however, were nearly flat at 16.67%, because total expenses climbed 24.81%. Net profit still grew 28.66%, helped by a few standout performers. Reliance Industries, for instance, saw consolidated net profit jump 40.6%, driven by its oil-to-chemicals business.
The pattern is clear in consumer goods. Hindustan Unilever posted its best revenue growth in 14 quarters, but gross margins fell sharply by 400 basis points because price hikes came slowly in an inflationary market. The company cushioned the blow by cutting advertising and promotion spending and finding cost savings, which held the drop in Ebitda margins to 130 basis points. Asian Paints saw its Ebitda margins shrink by 200 basis points in the September quarter, and it now plans price increases of around 3% to protect profitability while still chasing volume growth of 8-9% in the second half.
Car makers tell a more uneven story. Maruti Suzuki's revenue grew 26%, but the gain came from a low base and came entirely from higher volumes, since realisations were flat. Its operating profit still slipped 6% as margins contracted by 310 points. TVS Motor had a far better quarter, with revenue up 44% on a 27% rise in volumes, which gave it operating leverage to absorb commodity costs.
Retailers and industrial names offered some of the quarter's brightest numbers. Avenue Supermarts lifted revenue growth to 18%, up from 15% in the first quarter, and like-for-like growth recovered to 9.5%. Trent's revenue rose 22% and its operating profit climbed 37%. At Larsen & Toubro, the order book grew 28% year on year to Rs 8.6 lakh crore, and JSW Steel's operating profit jumped 58%, with plans to double capacity by FY32.
Why does this matter? Analysts at Jefferies say the share of companies upgrading FY27 earnings estimates is still above 50%, though slightly lower than in the June quarter. Of 105 results analysed from its coverage, 56% beat expectations. Bankers expect credit growth to hold at 14-15%, which signals healthy borrowing demand.
The challenge ahead is cost pressure. Godrej Consumer Products expects input cost inflation to stay higher in the third quarter and may raise prices in some categories, while TVS Motor expects commodity pressures to persist, though less intensely than in April-September. Festive season sales, shifted to October-November this year, could help make up the gap if demand holds. For consumers, that means the next few months will show whether higher sales translate into higher prices, or into stronger company profits.
Read the original report from Financial Express: Q2 story: Strong sales, weak margins.
