India Inc Sees Marginal Expansion In Q4 FY23 As Inflation Eases: Icra

India Inc witnessed sequential expansion in margins in Q4FY2023 as inflationary pressures eased, however, wary of a possible global recession, said the rating agency Icra.

The rating agency's analysis revealed expectedly positive revenue trends, with a YoY increase of 11.4 per cent, while the sequential revenue growth was relatively moderate at 5.2 per cent.

On a YoY basis, almost all sectors reported revenue expansion in Q4 FY2023, with aviation, hotels, ports and gems and jewellery leading the trend. 

"This was supported by the easing of commodity prices which continued to positively impact consumer sentiments. In terms of sequential performance, sectors such as consumer durables, construction, port and gems and jewellery reported a significant growth in revenues due to successive price hikes and strong demand witnessed in some sectors," it added.

On the other hand, a few sectors like fertilisers and retail witnessed a sequential decline in revenues during the quarter due to a decline in realisations, following a reduction in input costs, the rating agency stated.

Kinjal Shah, Vice President and Co-group Head, Corporate Ratings, Icra said, “The YoY growth in revenues during Q4 FY2023 was primarily driven by demand recovery, coupled with price hikes undertaken by companies across sectors."

Shah added that Icra's analysis shows that despite some easing off of inflationary pressures, the operating profit margin (OPM) of India Inc. contracted by 126 bps on a YoY basis in Q4 FY2023 as the conversion costs remained elevated and forex rates were unfavourable on a YoY basis. 

"The OPM of India Inc., however, expanded by 58 bps sequentially to 16.1 per cent during the quarter, aided by softening in the prices of many commodities on a sequential basis and general price hikes undertaken by the entities," Shah mentioned.

Shah stated that the sequential margin expansion was most visible in select sectors such as iron & steel, cement, oil and gas and consumer durables. While margin pressures are likely to ease further in the coming quarters, given the recent further softening of commodity prices, uncertainties remain due to the evolving geo-political situations. 

"Hence, despite some softening and stabilisation of commodity prices over the recent months, India Inc.’s ability to improve earnings will be dependent on headwinds such as evolving recessionary trends in the developed markets and impact of fluctuations in foreign exchange on both import as well as export-oriented sectors," Shah added.