From higher prices of commodities to rising expenses on employees, the increase in costs of a host of items has pressured operating margins of companies at a time when revenue growth has been muted.
For a group of 424 companies (excluding banks, financials and oil marketing companies) that have announced results for Q2FY25, revenues grew at a modest 6% year-on-year (y-o-y). At the same time, the total expenditure went up by 7% leading to a fall in operating margins of about 80 basis points (bps) y-o-y. Further, thanks to an 11% rise in interest costs, net profits were up only 4% y-o-y.
At Havells, employee costs increased by 26% y-o-y due to an increase in manpower and salary hikes while spends on advertising shot up by 53% y-o-y ahead of the festive season. The company also invested in new distribution and sales channels.
At Hindustan Unilever, the adjusted gross margins contracted 125 bps y-o-y due to volatility in prices of commodities — the prices of palm oil and tea rose 10% and 25% y-o-y.
At Indigo, the total expenses — aircraft fuel, rentals, repair and maintenance and airport charges — in the September quarter increased by22% y-o-y while the revenue from operations went up by 13.6%. The airline posted a surprise consolidated loss of `987 crore in Q2FY25, the first quarterly loss in two years.
At Colgate, the gross margins contracted 23 bps y-o-y and the operating margin by 206 bps y-o-y largely due to higher advertising and promotions, even as raw material prices were benign. The rise in advertising and promotions was close to 100 bps y-o-y. This dampened margins which contracted by 120 bps y-o-y.
A sharp escalation in prices of leaf tobacco hurt ITC’s profitability which was partly offset by calibrated pricing action and an improved product mix.
TVS Motor incurred higher-than-expected other expenses and staff costs which were partly responsible for the lower-than-expected operating profit growth of 20% y-o-y.
At ACC, an increase in the raw materials bill — as a share of sales — hurt profitability. Its operating margins contracted by 300 bps y-o-y, driving down the Ebitda (earnings before interest, tax, interest depreciation and amortisation) by 22%.
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