India companies’ Oct-Dec margins to shrink 200 bps

NEW DELHI |
Thu Dec 29, 2011 6:50pm IST

NEW DELHI (Reuters) – Indian companies’ profits would decline and margins shrink by 200 bps in October-December on slower volume growth, higher raw material and interest costs and limited ability to raise prices, Crisil Research said on Thursday.

Margins would decline to 17.7 percent in the third quarter from 19.7 percent a year earlier. Textiles, real estate and hotel companies are likely to see a sharp 300-500 bps decline, Crisil said.

The projections are based on an analysis of select companies across 21 industries, excluding banks and oil companies.

Analysts have been scaling down earnings growth projections for Indian companies as the economy falters and entrepreneurs turn averse to borrowing for expansion at high interest rates.

Crisil sees revenue growth of companies declining to 14-15 percent in the thrid quarter from 22.5 percent a year earlier, following a slowdown in consumption growth and investments, Crisil said.

Margins of automakers, retailers and steelmakers are expected to fall 100-200 bps. Airlines’ margins will remain under pressure despite strong volume growth because of their inability to fully pass on the fuel costs rise.

Cement makers, however, would see their margins improving slightly on higher realisation despite muted volume growth.

India’s main policy rate is at its highest since July 2008 after the central bank raised rates 13 times since March 2010 to rein in high inflation.

India has sharply cut its economic growth forecast for the current fiscal year ending March to between 7.25 percent and 7.75 percent from its original estimate of 9 percent.

India’s industrial output fell 5.1 percent in Ocober as capital goods investment slumped. The decline was the first time in more than two years.

(Reporting by Sanjeev Choudhary; Editing by Rajesh Pandathil)

Article source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/2khqM8K86cI/india-crisil-forecast-idINDEE7BS08I20111229

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