The elevated cost of inputs punctured the margins of most in India Inc in the three months to December 2021. Operating profit margins for a sample of 432 companies (excluding banks and financials) contracted 200 basis points year-on-year as raw materials costs jumped 466 basis points y-o-y. However, with aggregate revenues rising smartly — 32% y-o-y for the sample – operating profits were up 20% y-o-y and net profits increased a good 24% y-o-y. RIL and TCS account for just under a third of the revenues of the sample; excluding the two, revenues have increased by only 27% while profits have gone up by 21% y-o-y.

The recovery is somewhat uneven; even as the IT services companies continued to turn in splendid results, business was dull at Bhel where order inflows were weak due to delays in tendering. At Larsen & Toubro, order inflows during Q3FY22 were a shade below estimates.

Top-line growth was impressive as companies were able to push through price hikes even if the growth in volumes was modest. Companies with strong brands were gainers. For instance, despite an unfavourable base, Pidilite posted a strong 24% y-o-y increase in revenues in Q3FY22.

However, high product prices appear to be keeping demand muted in some categories. Several managements point out the recovery in rural geographies, post the second wave, has been rather muted. The data on two-wheelers suggest that the high ownership costs may have kept buyers away. Volumes for motorcycles fell 20% at Bajaj Auto, partly due to the shortage of chips but also because there were fewer buyers. At Ceat, volumes were down 4.5% y-o-y while at Maruti Suzuki they were down 13.2% y-o-y. Volumes at UltraTech declined 6% y-o-y during the quarter, primarily hurt by heavy and unseasonal rains in some places, bans on construction in some areas and a shortage of labour. Volumes at Hindustan Unilever grew just 2% y-o-y.

Nonetheless, price hikes helped the FMCG major post a reasonably strong top-line growth of 10% y-o-y. Asian Paints has been able to hike prices by about 22% in the nine months to December to combat a 25% rise in input costs. Blended realisations at cement manufacturer UltraTech increased by 12% y-o-y as it was able to sell more premium products. The net average selling price at Maruti went up by 15% y-o-y.

High costs ate into margins; at Bhel gross margins were down 100 bps y-o-y, hit by higher commodity prices on nearly 50% of fixed price-based order backlog. Marico’s consolidated gross margins fell 320 bps. JSW Steel’s Ebitda margin contracted nearly 500 bps y-o-y, though net sales were up 50% y-o-y. Bajaj Auto’s Ebitda margin, for instance, contracted 420 basis points y-o-y, driving down the Ebitda by 21% y-o-y. At Havell’s gross margins crashed 583 bps, driving down Ebitda margins by nearly 400 bps, despite revenues rising by 15.4% y-o-y.

Software companies continue to turn in strong numbers both on the top line and bottom line as they cash in on rising demand and execution remains top class. The recovery has seen retailers get back on track. Bhel turned Ebitda positive during the quarter. Shoppers Stop, for instance, turned debt-free in Q3FY22, posting a stand-alone revenue growth of 34% y-o-y, albeit on a low base.