Companies bleed less but input costs hit small firms harder in Q3
Premium- The aggregate profits of smaller companies fell 16% sequentially against 111% growth in September
MUMBAI : Higher covid-19 vaccination coverage and improving public mobility are gradually reducing the pandemic’s scars on India Inc.’s balance sheet. Around 26.9% of BSE-listed companies reported losses in the December quarter (Q3FY22), down from 27% in the preceding quarter and sharply off the high of 49% in April-June 2020, the first lockdown quarter, showed a Mint analysis of 2,540 companies on BSE. Nearly all listed companies have announced their Q3 earnings by now.
The combined losses of the companies in the red shrank to ₹19,117 crore against ₹20,620 crore in Q2, the analysis showed. This was the narrowest since March 2019.
“The marginal sequential reduction is mainly because the third quarter has been a near-normal quarter with some impact of third wave in pockets during the last two weeks of December," said Amnish Aggarwal, director-institutional research at Prabhudas Lilladher.
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That said, the aggregate profits of smaller companies—those with sales less than ₹1,000 crore—declined 16% sequentially against a whopping 111% growth in September, suggesting that a broad-based recovery still has some distance to cover. The operating profits of such companies declined 7% and firms saw a margin squeeze of 230 basis points sequentially. Experts believe high inflation in input costs led by crude oil and other global commodities is impacting profitability.
Bigger firms, though, don’t seem troubled much by higher input costs . The 20 most profitable companies in Q3 registered a 35% growth and 19% y-o-y growth, respectively, in their net and operating profits during the quarter. This further raised their profit concentration in India Inc., helping the biggies corner about 57% of earnings, up from their 54% in the previous quarter.
Overall, the sample saw a slower y-o-y growth in profits (43%) in Q3 compared with 67% in Q2, although their topline growth accelerated (32% vs 28%).
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Q3 results were a mixed bag with select sectors such as metals, banking, and oil and gas reporting robust growth, he added. Among the broader sectors, BFSI and oil and gas outperformed with over 50% y-o-y growth in their net profits, while metals and capital goods sectors posted a healthy rise of 40% and 27%, respectively. Auto industry sales, on the other hand, are reeling under the chip shortage, hurting their profitability.
In the March quarter, there is a margin compression, but a range of sectors, such as auto, may contribute better earnings as the semiconductor chip shortage is subsiding, said Aditya Sood, fund manager, InCred Multicap Fund.
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