Indian Mid Caps’ Margin Likely To Normalise From FY24, Says Jefferies


Indian mid caps’ operating profit margin is likely to start “normalising” from the fiscal ending March 2024, led by premiumisation, volume traction and softening of commodity prices, Jefferies said.

“Over April-August 2022, key input commodities (copper, aluminum, steel, etc.) have corrected by 20-30%. This could bring respite to operating profit margins in H2 FY23, given that most sectors have taken average 10-15% total price hikes in FY22,” the financial services provider said in an Aug. 25 report. “Also, better volume traction in housing (pipes, tiles), infra, capex (electricals) could entail operating leverage, aiding margins.”

According to Jefferies, about 55% of its coverage companies reported Ebitda margin expansion year-on-year in Q1 FY23. The key ones being: HEG Ltd. on strong price hikes and 100% domestic manufacturing; followed by Polycab India Ltd., Crompton Greaves Consumer Electricals Ltd., Kajaria Ceramics Ltd. and Dixon Technologies Ltd.

The financial services provider, however, expects operating margins of the companies in its coverage to drop 100 basis points in FY23 owing to a weaker first half. But margins could commence expansion from FY24, up 70 basis points year-on-year, it said.


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