Midcap, small cap outperform large caps on margins amid rising input costs
Large-cap firms saw operating margins contract significantly year-on-year. Mid- and small-cap companies experienced lesser margin contractions amid rising costs. These smaller firms also achieved higher revenue and net profit growth rates. Large-cap companies reported modest net profit growth, the slowest in seven quarters. Overall, aggregate operating margins for India Inc. declined.
India Inc's aggregate operating margin has been under pressure due to higher input costs over recent quarters. However, mid-cap and small-cap companies have experienced less pressure compared to large-cap counterparts. ET Intelligence Group's analysis of 3,340 companies (excluding banks and finance companies) reveals that large-cap operating margins shrank by 280 basis points year-on-year to a 13-quarter low of 14.3% in the June quarter.
Mid-cap margins remained flat at 12.8%, while small-cap margins contracted by 100 basis points to 7.7%.
Across all three company categories, a higher proportion of raw material costs relative to sales affected margins. Large-cap companies saw their raw material cost-to-sales ratio increase by 530 basis points year-on-year to 36%. Mid-caps experienced a 300 basis point increase to 45.8%, while small-caps rose by 550 basis points to 57.5%.
Despite the challenges, mid-cap and small-cap companies outperformed large-cap firms in terms of revenue and net profit growth. Revenue growth for mid-caps reached a nine-quarter high of 23.7%, and small-caps saw a 30.2% increase. Net profit growth also surged in double digits - 21.2% for mid-caps and 26.7% for small-caps. In contrast, large-caps posted a strong revenue growth of 22%, but net profit growth was only 1.6%, the slowest in seven quarters.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
