The second quarter performance of 625 listed companies (excluding financial sector entities) has shown positive trends with revenues growing 27.3% year-on-year, according to rating agency ICRA.

All the major sectors reported growth in revenues in Q2 FY23, with sectors like hotels, oil & gas, airlines, and power reporting sizable growth, albeit on a low base, the ratings agency says.

Companies, however, were unable to realise the benefits of the revenue growth in their earnings performance, with the operating profit margin contracting on both Y-o-Y as well as a sequential basis during Q2 FY2023 to multi-year lows, it adds.

“The YoY growth in revenues during Q2 FY2023 was primarily driven by increased realisation levels on account of input cost inflation, while volume growth was relatively subdued. Several consumer-oriented sectors like consumer durables, retail, and FMCG were impacted by moderation in demand on account of inflationary environment and softness in rural demand,” says Kinjal Shah, vice-president & co-group head – Corporate Ratings, ICRA.

The operating profit margin of India Inc. contracted by 455 basis points on a year-on-year basis to 14.5% during the quarter, ICRA’s analysis shows.

“While margin pressures are likely to ease gradually from Q3 FY2023 onwards, given the recent trends in softening of commodity prices, uncertainties remain, given the evolving geo-political situation. Overall, despite some softening and stabilisation of commodity prices over recent months, India Inc.’s ability to arrest the slide in earnings will be dependent on headwinds such as energy cost inflation, evolving recessionary trends in developed markets, and the impact of fluctuations in forex on both imports as well as export-oriented sectors,” Shah adds.

In terms of sectoral performance, construction, automotive, and airlines reported a significant growth in revenues on a sequential basis due to successive price hikes and steady demand.

At the same time, sectors like hotels, power, oil & gas, metals & mining, textiles, and consumer durables witnessed a sequential decline in revenues during the quarter owing to subdued demand and supply chain issues, especially for export-oriented sectors.

On the profitability front, while few sectors such as logistics, tyres, and automotive OEMs reported sequential expansion in OPM driven by factors such as gradual revival in demand and correction in commodity prices, a majority of sectors reported sequential contraction in operating profit margin due to their limited ability to pass on input cost hikes, adverse demand conditions, and supply chain constraints.

Metals & mining, cement, iron and steel were a few of the sectors which saw a steep sequential decline in OPM during the quarter.

“While the credit metrics remained at a moderate level in Q2 FY2023, marginal improvement is likely going forward given the recent trends in softening of commodity prices, reduction in energy cost and easing of supply chain constraints,” says Sruthi Thomas, assistant vice president & sector head – Corporate Ratings, ICRA.

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