While most of the firms reported in-line operating margins in the last quarter, only a few companies saw any major improvement
Operating margins of pharma, information technology, materials and telecom companies remain in the dumps, going by the fourth-quarter results.
Out of the Nifty 50 companies, 17 have reported falling operating margins since 2016, including two in the consumer discretionary sector, four in energy, three in pharma and two in IT sector.
While most of the firms reported in-line operating margins in the last quarter, only a few companies saw any major improvement.
Among the auto pack in the index, margins of Tata Motors and Bajaj Auto have dropped while they have risen at Hero MotoCorp and Maruti Suzuki.
Top firms including Mahindra & Mahindra, GAIL, Eicher Motors, ITC and Hindustan Unilever, have posted a rise in operating margins.
An operating margin is a return on sales that measures how much profit a company makes on sales, after paying for various costs of production such as wages, raw materials but prior of paying interest or tax. A decrease in operating can imply a fall in sales or a rise in expenses.
Pharma and information technology (IT) firms saw their operating margins fall since last two years.
Sun Pharma, Dr Reddy's, Lupin saw a major fall in their operating margins in the last quarter with Lupin reporting a 36.66% drop.
While Sun Pharma met its earnings estimates and posted a 7% rise in profit for the fourth quarter, its operating margin dropped sharply to 15.76% from 26.92% in 2016 and 29.16% in 2017.
"Pharma companies are cutting down their pricing power. This is the reason behind their decreasing operating margins. Also, the growth is not coming," A K Prabhakar, head of research, IDBI Capital said.
Among the Nifty50 Information Technology pack, Wipro and HCL Technologies reported a fall in operating margins. Wipro's operating margin plunged year on year to 13.77% from 17.42% in Q4 of 2016. HCL Technologies also reported a drop in the margins.
"Aggressive competition, the rise in oil price has impacted the companies. IT companies have seen single digit growth, but the base has gone up by 2-3% only. This is affecting the operating margins for the IT companies majorly," G Chokkalingam, founder and managing director of Equinomics Reseach and Advisory said. Margins are falling in the telecom sector beset that is seeing stiff competition. Bharti Airtel, which posted lowest net profit growth in 15 years in the latest Q4, saw its operating margins plunge to 10.76% in 2018 from 17.31% in 2016 and to 13.51% in 2017.
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Among the auto pack in the index, margins of Tata Motors and Bajaj Auto have dropped while they have risen at Hero MotoCorp and Maruti Suzuki.
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