Corporate profitability, as defined by the earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, may have dropped 100-120 basis points (bps) on-year and 70-100 bps sequentially in the third quarter ended December 31, 2021, CRISIL’s analysis of 300 companies (excluding those in the financial services, and oil and gas sectors) indicates.

This marks the first year-on-year decline in 12 quarters. As many as 27 of 40 sectors tracked by CRISIL Research are likely to see their Ebitda margins shrinking. In terms of sectors, margins in consumer discretionary may have fallen 130-150 bps on-year, and in export-linked by 200- 250 bps. Information technology services likely saw margins contract 230-250 bps due to increased subcontracting, while steel products and pharmaceuticals may log a contraction of 110-130 bps each due to rising input cost.

Moderating profit growth

Hetal Gandhi, Director, CRISIL Research, said “Companies were unable to fully pass on soaring input cost, especially key metals and energy prices. Flat steel prices were 48 per cent higher on-year in the third quarter, while aluminium was up 41 per cent. The price of Brent crude surged nearly 79 per cent, while those of spot gas and coking coal rocketed almost 5.4x and 2.4x, respectively, on-year.”

For the first nine months this fiscal, Ebitda margin is seen up 80-100 bps year-on-year to 22-24 per cent, aided by the low base of last year. Ebitda profit growth should moderate to 10-12 per cent year-on-year, compared with a scorching 47 per cent clocked in the first half of this fiscal — a number that was also bolstered by low-base effect.

Drishti Chugh, Senior Research Analyst, CRISIL Research, “In absolute terms, revenues of most sectors have now risen above their pre-pandemic levels, barring airlines and hospitality. But sectors linked to consumer discretionary products have been a drag on overall corporate revenue, which likely grew 7-9 per cent on-year due to lower volume growth. Among other segments, export-linked ones have continued to drive traction with a growth of 15-17 per cent on-year, though this has not quite helped maintain their margins.”