These 6 Stocks Expanded Profit Margins Despite Inflation Pressure

From the price of edible oils to the tariff rates of your telecom service provider, inflation is pushing the prices of essential products upwards.

In January 2022, inflation in India stood at 6%, against 4% in January 2021 which is at the higher end of the inflation target (2%-6%)set by the Reserve Bank of India (RBI).

Despite RBI asking us not to be alarmed by the rising inflation, it is becoming hard to ignore it.

Inflation is affecting everyone right from the consumers by reducing their purchasing power to big companies by increasing their input costs resulting in lower profit margin.

However, in this inflationary environment, some companies have managed to increase their profits at a higher rate than others by efficiently managing their operations.

Here are six companies whose margins expanded during the December 2021 quarter despite inflation.

#1 Coal India

The first stock on our list is Coal India, a Government of India establishment.

The company produces more than 80% of the coal in India and is the largest producer of coal in the world.

It offers different varieties of coal to several industries, including power, cement and fertilizers.

During the December 2021 quarter, Coal India's operating margin expanded by 7.1% to 24% as compared to 16.9% in the September 2021 quarter.

The company saw its revenue grow 20% year on year (YoY) as demand for power made a strong comeback. This along with higher production of coal led to an increase in margins.

Coal India enjoys cost leadership in the industry due to high-capacity mining, leading to economies of scale. However, rising fuel costs can impact its profit margin.

To know more about Coal India, check out its factsheet.

#2 NTPC

Second on our list is NTPC, India's largest power generating entity.

The company is a government-owned organization that primarily generates and sells bulk power to power utilities.

It has an installed capacity of 67,832 MW across coal, hydro, solar, wind and gas-based sources.

NTPC also provides consultancy and project management services. In addition, it has ventured into coal mining and oil and gas exploration.

The company's operating margin expanded by 5.4% to 33.1% during the December 2021 quarter from 27.7% in the September 2021 quarter.

In comparison, its peer, Tata Power, saw its margins expand by only 2.1%

Though higher revenues during the quarter contributed to the margin expansion, the company has always demonstrated operational efficiency. This is mainly due to the close proximity between coal mines and pitheads, reducing transportation costs.

As a result, it always had a cost advantage over its peers. The company's net profit also grew by 58.5% YoY.

To know more about NTPC, check out its factsheet.

#3 Asian Paints

Next is India's largest paint manufacturer, Asian Paints.

The company is primarily engaged in the business of manufacturing paints. It also manufacturers varnishes, enamels, surfacing preparation, solvents and thinners.

Asian Paints enjoys a market share of about 50%, while its closest competitor has only a 16% market share. It has also ventured into the modular kitchen and bath business through acquisitions.

The company's operating profit margin expanded by 5.4% to 18.1% in the December 2021 quarter as compared to 12.7% in the September 2021 quarter.

In comparison, its peer, such as Kansai Nerolac, saw a margin expansion of just 1.8%.

The margin expansion was primarily led by a 25.6% YoY increase in revenue. The company's decorative business segment grew consecutively for the fifth quarter and registered an 18% YoY growth in volumes.

It has also undertaken price hikes which increased the realisations, ultimately contributing to margin expansion.

Besides this, Asian Paint's strong market leadership in organized and decorative paints has helped the company maintain a healthy operating profit margin that is higher than its peers.

To know more about Asian Paints, check out its factsheet.

#4 Bajaj Finserv

Fourth on our list is Bajaj Finserv, a financial services company.

The company is the holding company of various financial services of the Bajaj Group.

It promotes financial services such as insurance, wealth management and lending through its subsidiaries Bajaj Finance, Bajaj Allianz Life Insurance and Bajaj Allianz General insurance.

Bajaj Finserv is also in the business of generating power from renewable sources such as wind turbines.

In the recent quarterly results, the company's margins expanded by 3.5% to 33% as compared to 29.5% in the September 2021 quarter.

This was driven by growth in revenue from operations which grew 10.21% YoY.

Higher loan disbursements and high growth of its life insurance business on account of economic recovery also contributed towards this growth.

To know more about Bajaj Finserv, check out its factsheet.

#5 Tata Motors

The leading global automobile manufacturer, Tata Motors, is next on our list.

The company is a 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, multi-purpose vehicles and electric vehicles to over 60 countries worldwide. Tata Motors also has a presence in the luxury car market through Jaguar Land Rover (JLR), which it acquired in 2008.

The company's operating profit margin expanded by 2.9% to 9.5% from 6.6% in the September 2021 quarter.

In comparision, its closest competitor Maruti Suzuki saw just a 2.4% expansion in its margin.

This was mainly due to the strong growth of its domestic, commercial vehicle (CV) and passenger vehicle (PV) segments.

The company has also undertaken price hikes due to rising steel prices which kept the margins high. With steel prices stabilizing, the company expects its margins to grow further.

To know more about Tata Motors, check out its factsheet.

#6 Divis Laboratories

Last on our list is Divis Laboratories, a pharmaceutical company.

The company is one of the leading pharmaceutical companies in the county and is primarily engaged in the business of manufacturing active pharmaceutical ingredients (API), intermediates and nutraceutical ingredients.

Divis Laboratories enjoys a diversified market presence across developed, pharm-emerging, and developing countries by exporting its products to over 95 countries

The company's operating margins expanded by 2.8% to 44.0% in the December 2021 quarter as compared to 41.2% in the September 2021 quarter..

In comparison, its competitors Sun Pharma and Aurobindo Pharma saw a decline in the margin by 0.9% and 2.5%, respectively.

This was mainly driven by higher revenue from operations. The company's revenue grew 46.53% YoY, mainly due to growth in exports that accounts for 87% of the total revenues.

The company's heavy investment in research and development (R&D) has paid off. It helped the company develop new products at a faster pace and achieve cost efficiency on the existing ones.

As a result, its profits also grew by 91.7% YoY.

To know more about Divis Laboratories, check out its factsheet.

Should you invest in stocks that beat inflation?

Inflation can be either be good or bad for the economy. The outcome depends on where there is inflation, and how much.

The rise in consumer price index (CPI) from the last few months was mainly due to food inflation which is expected to fade away in a few months. However, non-food inflation is here to stay.

Due to the current Russia-Ukraine crisis, the oil prices have already gone up, impacting several industries from manufacturing to distribution.

Several companies are already undergoing price hikes to recover from the pandemic and rising input costs. Adding to this, the crisis will only put us in a vicious circle of inflation.

Companies that can effectively dodge inflation and expand margins become lucrative investment options in such a situation. Hence investors can consider adding such companies to their watchlist.

But before you do that do check the fundamentals and valuations of the business as they help in making your investment decision easier.

Remember that the stock market is very volatile, hence it is always better to proceed with caution.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...