MUMBAI: It has been a strong earnings season for India Inc, with net profits surging 28.6% year-on-year, buoyed by robust revenue growth. Healthy volumes, elevated commodity prices and, to some extent, a weaker rupee have helped lift the top line. But the gains have come at a cost.
Rising raw material prices and other expenses have eaten into profitability, leaving operating margins virtually unchanged in the September quarter of FY27.
Unless input inflation eases meaningfully, companies may have little choice but to raise prices further to protect margins.
The encouraging part is that demand remains resilient. From automobiles and consumer staples to apparel and aluminium, companies have reported healthy sales growth, supported by strong volumes. For a universe of 2,116 companies, excluding banks, financial firms, oil marketing companies and Vedanta, aggregate revenues climbed 23.6% year-on-year.
The strength of underlying demand is particularly evident in consumer-facing businesses.
Maruti Suzuki, India’s largest carmaker, reported a 26% increase in revenues, driven entirely by volumes, with realisations remaining flat during the quarter. Hindustan Unilever (HUL) posted a healthy 7% rise in underlying volumes, helping the FMCG major clock its strongest revenue growth in 14 quarters. Britannia Industries, too, benefited from buoyant demand, with a 13% increase in volumes driving revenue growth of 15.6%.
Yet, the robust top-line performance has not translated into a commensurate improvement in operating profitability.
For the sample, total expenses rose 23.4% year-on-year, while raw material costs as a proportion of net sales increased by 230 basis points. Consequently, aggregate operating profit margins stood at 17.22%, barely 10 basis points higher than a year earlier.
The pressure is visible across several sectors. At HUL, gross margins contracted sharply by 400 basis points, prompting the company to raise prices across several product categories following its earnings announcement.
Managing Director and CEO Priya Nair said the company was seeking to strike the right balance between pricing and volumes while pursuing savings through procurement and supply-chain efficiencies. “The focus is to ensure we do the right amount of pricing to cover costs,” she said.
Asian Paints, which reported a 200-basis-point decline in EBITDA margin in the September quarter, is also looking to further price increases to protect profitability.
Managing Director and CEO Amit Syngle attributed the pressure to sharp raw material inflation and supply constraints arising from geopolitical disruptions. “With inflationary pressures showing little sign of easing, we are implementing a further round of staggered price increases in the coatings business,” he said.
Britannia faced a similar squeeze. Its gross margin narrowed by 200 basis points, while EBITDA margin contracted by 150 basis points year-on-year, reflecting the impact of higher input costs despite strong volume-led growth.
Automakers have not been spared either. Hyundai Motor reported a 270-basis-point contraction in gross margin in Q2FY27 as elevated commodity prices weighed on profitability.
Maruti Suzuki, too, has been raising prices to offset rising costs. Managing Director and CEO Hisashi Takeuchi said the company had already increased prices three times in FY27 and was planning another round over the next six months. “That will further improve our profit situation,” he said, adding that the company was simultaneously working to contain expenses.
Companies with stronger pricing power, particularly those catering to the premium end of the market, appear better placed to pass on higher costs to consumers.
LG Electronics, for instance, managed to expand its operating margin by 60 basis points, supported by a healthy 19.5% increase in revenues.
Voltas also reported an improvement in operating profitability, with margins expanding by 170 basis points year-on-year. Analysts, however, attributed part of the improvement to a favourable comparison with a weak base in the corresponding quarter of FY26. The company has recently raised prices by around 5–7%, and management has indicated that further increases may be considered.
For airlines, the cost pressures have been particularly severe. InterGlobe Aviation, which operates IndiGo, reported a loss of Rs 1,879 crore despite a robust 26% rise in revenues, as higher fuel costs weighed heavily on earnings. Analysts expect margins to remain under pressure in the near term, with little prospect of a meaningful decline in aviation fuel prices.
Commodity producers, meanwhile, have benefited from the other side of the price equation.
Firm steel prices helped JSW Steel report a 58% year-on-year jump in operating profit in Q2FY27. Aluminium major Hindalco also delivered a strong performance, with revenues rising 39%, aided by healthy realisations and an improved product mix. Its profitability strengthened during the quarter.
The contrasting performances underscore a defining feature of this earnings season: while demand has remained robust across much of corporate India, the ability to translate revenue growth into higher margins varies considerably across sectors.
For companies grappling with persistent input-cost pressures, the next leg of earnings growth may depend less on selling more and more on how much of the cost increase they can pass on to consumers without hurting demand.
Source: The Financial Express
