From the price of cooking oils to your telecom operator’s prices, inflation is pushing the prices of basic necessities upwards.
In January 2022, inflation in India stood at 6%, compared to 4% in January 2021 which is in the upper range of the inflation target (2%-6%) set by the Reserve Bank of India (RBI).
Although RBI tells us not to worry about rising inflation, it is getting hard to ignore it.
Inflation affects everyone from consumers by reducing their purchasing power to large corporations by increasing their input costs, resulting in a lower profit margin.
However, in this inflationary environment, some companies have managed to grow their profits at a higher rate than others by effectively managing their operations.
Here are six companies whose margins grew in the December 2021 quarter despite inflation.
#1 Coal India
The first stock on our list is Coal India, an institution of the Indian government.
The company produces over 80% of the coal in India and is the largest coal producer in the world.
It offers different varieties of coal to several industries, including electricity, cement and fertilizers.
During the December 2021 quarter, Coal India’s operating margin increased by 7.1% to 24%, compared to 16.9% in the September 2021 quarter.
The company saw its revenue increase by 20% year-on-year (YoY) as demand for electricity made a strong comeback. This, combined with higher coal production, resulted in increased margins.
Coal India enjoys cost leadership in the industry due to high capacity mining, which leads to economies of scale. However, rising fuel costs may impact its profit margin.
Second on our list is NTPC, India’s largest power generation entity.
The company is a government-owned organization that primarily generates and sells bulk electricity to power utilities.
It has an installed capacity of 67,832 MW through coal, hydro, solar, wind and gas sources.
NTPC also provides consulting and project management services. Also, he ventured into coal mining and oil and gas exploration.
The company’s operating margin increased 5.4% to 33.1% in the December 2021 quarter, from 27.7% in the September 2021 quarter.
In comparison, its counterpart, Tata Power, saw its margins increase by only 2.1%
Although higher revenues in the quarter contributed to margin expansion, the company continued to demonstrate operational efficiency. This is mainly due to the close proximity between the coal mines and the coal mines, which reduces transport costs.
As a result, it has always had a cost advantage over its peers. The company’s net profit also rose 58.5% year-on-year.
#3 Asian Paintings
Next is India’s largest paint manufacturer, Asian Paints.
The company is mainly active in the field of paint manufacturing. It also manufactures varnishes, enamels, surfacing preparations, solvents and thinners.
Asian Paints has a market share of around 50%, while its nearest competitor has only 16% market share. It has also ventured into the modular kitchen and bathroom business through acquisitions.
The company’s operating profit margin increased 5.4% to 18.1% in the December 2021 quarter from 12.7% in the September 2021 quarter.
In comparison, its counterpart, such as Kansai Nerolac, saw its margin increase by only 1.8%.
Margin expansion was primarily driven by a 25.6% year-on-year increase in revenue. The company’s decorative business segment experienced consecutive growth in the fifth quarter and recorded 18% year-over-year volume growth.
He also undertook price increases which increased realizations, ultimately contributing to margin expansion.
In addition, Asian Paint’s strong leadership in the curated and decorative paints market has helped the company maintain a healthy operating profit margin above its peers.
#4 Bajaj Finserv
Fourth on our list is Bajaj Finserv, a financial services company.
The company is the holding company for various financial services of Bajaj Group.
It promotes financial services such as insurance, wealth management and loans through its subsidiaries Bajaj Finance, Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance.
Bajaj Finserv is also in the business of generating electricity from renewable sources such as wind turbines.
In recent quarterly results, the company’s margins increased 3.5% to 33%, from 29.5% in the September 2021 quarter.
This was driven by growth in operating income which increased by 10.21% year-on-year.
Higher loan disbursements and strong growth in its life insurance business due to the economic recovery also contributed to this growth.
#5 Tata Motors
The world’s largest automaker, Tata Motors, is next on our list.
The company is part of the prestigious Tata Group and is the largest commercial vehicle manufacturer with the largest market share in the domestic CV segment.
It also offers passenger vehicles, multi-purpose vehicles and electric vehicles in more than 60 countries around the world. Tata Motors is also active in the luxury car market through Jaguar Land Rover (JLR), which it acquired in 2008.
The company’s operating profit margin increased 2.9% to 9.5% from 6.6% in the September 2021 quarter.
In comparison, its nearest competitor, Maruti Suzuki, only saw its margin increase by 2.4%.
This is mainly due to strong growth in its domestic, commercial vehicle (CV) and passenger vehicle (PV) segments.
The company also undertook price increases as rising steel prices kept margins high. With steel prices stabilizing, the company expects its margins to continue to grow.
#6 Divi Laboratories
Last on our list is Divi’s Laboratories, a pharmaceutical company.
The Company is one of the leading pharmaceutical companies in the county and is primarily engaged in the manufacturing of active pharmaceutical ingredients (APIs), intermediates and nutraceutical ingredients.
Divi’s Laboratories enjoys a diversified market presence in developed, emerging and developing countries by exporting its products to more than 95 countries.
The company’s operating margins increased 2.8% to 44.0% in the December 2021 quarter from 41.2% in the September 2021 quarter.
In comparison, its competitors Sun Pharma and Aurobindo Pharma saw their margins fall by 0.9% and 2.5% respectively.
This is mainly explained by the increase in operating income. The company’s revenue increased by 46.53% year-on-year, mainly due to growth in exports which account for 87% of total revenue.
The company’s significant investment in research and development (R&D) has paid off. This helped the company to develop new products at a faster rate and reduce the cost of existing products.
As a result, its profits also increased by 91.7% year-on-year.
Should you invest in stocks that beat inflation?
Inflation can be good or bad for the economy. The outcome depends on where the inflation is and how big it is.
The rise in the consumer price index (CPI) over the past few months is mainly due to food inflation, which should fade in the next few months. However, non-food inflation is here to stay.
Due to the current crisis between Russia and Ukraine, oil prices have already increased, affecting several industries, from manufacturing to distribution.
Several companies are already experiencing price hikes to recover from the pandemic and rising input costs. Moreover, the crisis will only plunge us into a vicious circle of inflation.
Companies that can effectively dodge inflation and increase their margins become lucrative investment options in such a situation. Investors may therefore consider adding these companies to their watch list.
But before that, check the company’s fundamentals and valuations, as they help your investment decision.
Remember that the stock market is very volatile, so it is always best to proceed with caution.
Disclaimer: This article is provided for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)