Sucheta Dalal :Most companies are sporting operating margins way above 5-year highs
Sucheta Dalal

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Most companies are sporting operating margins way above 5-year highs  

October 29, 2009

While investors are enthused about the superb corporate performance for the June and September quarters, the fact is that Indian companies are enjoying some of the best operating margins of all time.

 

Here are some examples. In the September 2009 quarter, Bhushan Steel has posted an operating profit which is 9% higher than the 17% average operating profit margin of five years. Similarly Birla Corporation’s operating profit of 39% for the September quarter was way above its 23% average OPM over the past five years. Exide Industries enjoyed 26% for the September 2009 quarter when its five-year average OPM was 16%. Dr Reddy’s Laboratories and Ultratech Cement which had posted an operating profit margin of 27% and 37% respectively in the June 2009 quarter have recorded an operating profit margin of 26% and 31% respectively in the September 2009 quarter. Their average five-year operating profit margins were only 18% and 23% respectively.

 

The reason for such a fanstastic growth in operating profit was, of course, the highly depressed commodity prices in the second half of 2008 and the first few months of 2009, since the global crisis led to a collpase in demand for copper, steel, lead and petroleum-based products. From March this year, all commodity prices have started moving up. Crude oil price has doubled over one year to $80. The effect of higher commodity prices will be felt from the December quarter onwards, especially since revenue growth for most companies have been muted.

–Swapnil Suvarna [email protected]

 


-- Sucheta Dalal



 



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