India Strategy - Corporate Margins To Rise From The Ashes: Motilal Oswal

Motilal Oswal Report

India Inc’s operating profitability has seen a sharp contraction with Q2 FY23 and H1 FY23 Ebitda margins of our coverage companies (excluding financials) being down 540 basis points and 510 bps to 12.8% and 13.5%, respectively in Q2 FY23.

The gross and Ebitda margins for our universe are expected to come in at multiyear lows of 29.4% and 14.7% in FY23, a compression of 520 bps and 270 bps YoY, respectively.

However, the recent commodity price correction will drive the margin pick-up sequentially in H2 FY23E and FY24E, in our view. We expect our universe to post 190 bps and 220 bps expansions in gross and operating margins to 31.3% and 16.9%, respectively, in FY24.

We forecast the following sectors to lead the gross margin recovery in FY24: cement (up 430 bps), consumer (up 250 bps), metals (up 240 bps), oil and gas (up 150 bps), and auto (up 130 bps).

We project the following sectors to lead the Ebitda margin recovery in FY24: cement (up 310 bps), oil and gas (up 230 bps), metals (up 190 bps), and auto (up 180 bps).

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