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PTI Last Updated at 07 Aug 2018, 20:08 IST India

In spite of corporates witnessing

a healthy 22 per cent revenue growth in the June quarter, most

have seen flat margins, with airline and cement companies

seeing declining margins due to rising input costs and

crude prices, says a report.

According to an analysis of 173 companies by Icra,

consumer-oriented sectors like auto, FMCG, consumer durables

and airlines as well as commodity-linked sectors like cement,

iron & steel and oil & gas, saw stronger sales growth in the

June quarter.

This was supported by a low-base across most sectors

in Q1 of FY18 because of GST-related inventory de-stocking.

"On average the corporate sector has reported a 22 per

cent rise in revenue but on flat margins," Icra said in a

report today.

While pharma grew 20.8 per cent, supported by strong

domestic sales and base effect, IT reported a healthy 12.9 per

cent boosted by strong performance in their digital offerings

and partial recovery in the BFSI segment.

Many companies also reported price hikes due to

increase in raw material prices. The sales growth was however

flat at 0.7 per cent on a quarter on quarter basis.

Strong revenue growth has ensured that companies are

able to protect their pre-tax margins which remained overall

flat on an annualised and sequential basis, as they have

managed to offset the increase in raw material and fuel prices

through price hikes, operating leverage and cost reduction,

says Icra.

While pre-tax margins of FMCG, iron & steel, capital

goods, and auto players increased, that of airlines and cement

declined because of sector specific dynamics.

The aggregate interest coverage ratio of the sample

companies was at 5.7x, which indicates a marginal

deterioration in the interest coverage indicators (6x in Q1

FY18) and (6.1x in Q4 of FY18), primarily because aggregate

interest costs increased more than the aggregate

pre-tax margins.

In terms of sector specific trends, FMCG, consumer

durables and automobiles continued to grow their

domestic volumes.

However, volume growth has come on a low-base because

sales in Q1 FY18 were impacted by GST related inventory

de-stocking. Volume increase was also supported by price hikes

across multiple segments because of increase in raw

material costs.

Sectors like automobiles, consumer goods, paints and

FMCG hiked prices in Q1 to counter dearer raw materials. In

the automobile space, companies hiked prices to offset the

rise in steel prices.

Several consumer-oriented companies have reported

strong growth in the rural areas, which is expected to

continue on the back of good monsoons, MSP hikes and overall

thrust on agri-economy ahead of elections.

Among the sectors that could not sustain margins are

airlines and cement. While airlines are under pressure due to

rise in fuel prices, falling rupee and lower yields and

competitive pressures, the cement companies' margin was hit by

rise in pet coke prices and increase in freight rates and flat


Crude prices rose 47.6 per cent in Q1 putting

significant pressure on the margin of airlines, as their fuel

cost has jumped close to 30 per cent. As the entire cost could

not be passed on to passengers, their yields were down 5.5 per

in the quarter.

For cement companies, increase in pet coke prices

adversely impacted margins to the tune of over 9-15 per cent

increase in its power and fuel costs.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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