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With inflation ruling at decade highs in many countries, margin pressure has been emerging as a key concern for equity valuations, with India no exception.

Selling sprees in US retailers Walmart and Targets sent global stocks into tailspin earlier this week. But back home, as many as 130-odd BSE 500 companies including many cement, tyre, paints and consumer staples companies have also reported at least 100 per cent drop in PAT margin, data suggests. Management commentaries are full of “near term pressure” and “cost control measures”.

For example, tyre makers such as CEAT, MRF and

saw a surge in input cost eating into margins.

CEAT reported a 565 basis points drop in PAT margins at 0.68 per cent in the March quarter from 6.34 per cent in the year-ago quarter, as per data available with AceEquity. Ebitda margin shrank 418 basis points to 7.2 per cent, thanks to higher crude and rubber prices.

Margins continue to be under pressure due to rising commodity prices and other inflationary costs,” MD Anant Goenka said in the results note.

Peers Apollo Tyres and MRF saw 370-380 basis points YoY fall in PAT margin. MRF ‘s gross margin in fact fell 640 basis points YoY (130 bps QoQ) to 32.1 per cent.

noted that despite best efforts, the MRF management has been unable to fully recover the increase in raw material cost.

Paints companies such as and also witnessed a steep decline in margins. Asian Paints’ gross margin fell 448 basis points to 38.7 per cent while Nerolac’s gross margin declined 663 basis points to 27.9 per cent during the quarter.

Antu Thomas of

noted paint companies have already taken a price hike of nearly 20 per cent due to inflationary pressure on raw material costs. In addition to that, Asian Paints took a 2 per cent price hike from April-May and expects more price hikes in June quarter.

“We expect the demand trend may have an impact in the near term on account of a steep rise in prices,” Thomas said.

Asian Paints’ PAT margin fell 202 basis points to 10.96 per cent and Kansai’s 720 basis points to 1.24 per cent.

In the FMCG segment,

saw gross margin pressure falling 310 basis points YoY and 160 bps sequentially to 55.4 per cent, which was a 19-quarter low. PAT margin fell 1.74 per cent to 14.94 per cent.

“We believe near-term raw material headwinds will keep margins under pressure. We maintain hold and rolled over our estimates to March 2024 with a revised target of Rs 18,300 from 18,600 earlier,” Axis Securities said.

PAT margin basis for FMCG firm

fell 430 basis points YoY to 11.74 per cent. CEO Mohit Malhotra said flexibility of passing on this entire inflation in terms of price increases is there but this will only tell on the volume.

“And therefore, we are kind of pushing back, not really taking very heavy price increases and waiting for competitors to take price increases before we take price increases. So, that’s why there could be near term pressure on the margins because of this,” he said in Dabur Earnings call.

Cement makers

and ACC also saw 4-5 percentage points drop in March quarter PAT margin. saw 169 basis points YoY drop in Q4 PAT margin to 11.80 per cent.

Many auto and auto component companies such as

, Bharat Forge, , Atul, , , , also saw steep drop in PAT margins.

“The concerns that have been weighing on the markets since then start of the year related to inflationary pressure and tightening by the global central banks seem to have got exacerbated in the past couple of months, especially with the long-drawn geopolitical crisis and the fresh wave of Covid-19 in China, which have further disrupted the supply-chains,” said Milind Muchhala, Executive Director, Julius Baer India.

Muchhala, said, this is clearly reflected in the rising inflation prints, margin pressure in March quarter results across sectors due to higher input and freight costs, and the cautious commentaries by various corporates for the near-term.


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