Top 5 Stocks with Biggest Expansion in Operating Profit Margin in Q1FY24
Operating profit margins of these companies have expanded on a YoY as well as sequential basis to a great extent. What's driving the growth?
In June 2023, the Indian stock market witnessed a blockbuster rally as both the Nifty 50 and BSE Sensex reached all-time highs, not once but thrice. The Nifty 50 traded near 19,300, while the Sensex surpassed 65,000 by the end of the month.
This impressive performance was driven by strong inflows from foreign institutional investors (FIIs), robust corporate balance sheets, moderating inflation, and positive expectations for economic growth buoyed by anticipated normal monsoon conditions.
Since April 2023, the markets have rallied over 8% thanks to a stable macroeconomic outlook and favourable crude oil prices.
However, in a momentum-driven market, some stocks without strong fundamentals may also experience a rise.
In the first quarter of fiscal year 2024 (1QFY24), certain companies demonstrated exceptional financial performance, showcasing effective cost management, revenue growth, and operational efficiency.
These remarkable expansions in operating profit margin on both a year-on-year (YoY) and sequential basis indicate their potential for continued success.
Here are the top 5 companies that delivered an outstanding performance for the first quarter of FY24.
#1 United Spirits
Leading the pack is United Spirits.
United Spirits is the largest spirits company in India and a flagship entity of the UB group. It manufactures a wide range of whisky, vodka, rum and other spirits.
United Spirits is among the top three spirits companies in the world. USL has a global footprint with exports to over 37 countries.
In the June 2023 quarter, United Spirits witnessed a remarkable 136% YoY surge in operating profit margin, reaching 12.6% compared to 5.3% in the previous year.
On a sequential basis, the company reported an astounding 189% rise in operating profit margin, climbing from 4.4% in the March 2023 quarter.
These impressive results were achieved by strategically reshaping the portfolio, focusing on revenue growth management, and enhancing overall operational efficiency, despite prevailing inflationary pressures.
During the June 2023 quarter, the company's total revenue saw a substantial 138% increase, amounting to ₹58.3 billion.
This was led by the strong growth in the standalone business and a significant increase in revenue, driven by the Indian Premier League’s new five-year media rights cycle.
The operating profit soared 91.6% to ₹7.2 bn, led by increased realisation.
During the quarter, the company’s net profit also soared an impressive 82% YoY to ₹4.7 billion, compared to ₹2.6 billion in the corresponding quarter of the previous financial year.
A major contributor to this success was its wholly owned subsidiary, Royal Challengers Sports Private, which significantly increased its earnings through the IPL's new media rights cycle.
United Spirits is looking to sustain its growth momentum and delivering long-term value to all stakeholders.
#2 Bhansali Engineering
Second, on the list is Bhansali Engineering.
Bhansali Engineering Polymers (BEPL) is a leading name in the petrochemical sector in India. It is a vertically integrated petrochemical company manufacturing ABS (Acrylonitrile Butadiene Styrene). ABS is a raw material used extensively across industries like automobiles and other sectors.
The company manufactures and produces a variety of speciality grades and 1,200 different colour shades.
During the June 2023 quarter, Bhansali Engineering achieved an impressive 39% YoY rise in operating profit margin, reaching 19.9% compared to 14.3% in the previous year.
On a sequential basis, the company's operating profit margin surged by a remarkable 157%, climbing from 7.7% in the March 2023 quarter.
This significant improvement in profitability was attributed to a 1.9% YoY decline in the cost of materials and services. This was influenced by favourable commodity prices and enhanced operational efficiency.
Further, the company completed two margin-accretive acquisitions in 1QFY24, which helped to boost its operating profit margin.
The company's consolidated revenue from operations for the quarter stood at Rs3.1 bn, down 10.82% YoY from ₹3.4 bn in the same quarter last year. The decline in revenue was due to a slowdown in demand from the automotive and electrical sectors.
Its operating profit came in at ₹690.9 m, up 2.9% YoY. This was due to favourable commodity prices, such as steel and copper, and improved operational efficiency.
The consolidated net profit after tax (PAT) for the quarter stood at ₹503 m, up 5.88% YoY from the same quarter last year.
The company's management expressed confidence in maintaining the current growth momentum in the forthcoming quarters.
They also revealed plans to expand their product portfolio and enter new markets, indicating a proactive approach towards sustaining growth and exploring new opportunities.
#3 Abans Enterprises
Third, on the list stands Abans Enterprises.
Abans Enterprises Limited provides financial services. The company deals in trading in commodities, equities, and currency derivatives.
Driven by cost control measures, the company reported a 188% YoY rise in operating profit to 2.8% from 0.9%. On a sequential basis, it was up 157%.
For the June 2023 quarter, the company reported a 43% YoY decline in revenue at ₹2.8 bn against ₹4.9 bn a year back. The operating profit came in at ₹779 m against the negative operating profit of 0.1 m last year.
The net profit for the quarter stood at ₹330 million (m), a decline of 62% from the previous year. This was mainly due to lower demand and increasing competition..
Looking ahead, Abans Enterprises is focused on expanding its presence in new markets.
By adapting to changing market conditions and pursuing growth opportunities, the company aims to enhance its financial performance and create value for its investors.
#4 Mishtann Foods
Fourth on the list is Mishtann Foods.
Mishtann Foods is engaged primarily in agribusiness. The business activities consist of manufacturing and processing rice and wheat. Its product offering includes Wheat, Toor Dal, and Basmati rice.
During the June 2023 quarter, Mishtann Foods achieved an impressive 920% YoY rise in operating profit margin, reaching 24.8% compared to 2.4% in the previous year.
On a sequential basis, the company's operating profit margin surged by a remarkable 115%, up from 11.5% in the March 2023 quarter.
This marked the highest operating profit margin reported by the company in the last five years. It was driven by efficient cost optimisation and improved operational practices.
For the June 2023 quarter, Mishtann Foods reported an 85% YoY rise in revenue to ₹2.9 bn. The growth was fueled by robust demand and successful geographic expansion of products. The operating profit for the quarter jumped 300% YoY to ₹728 m.
The net profit for the quarter also jumped 526% to ₹689 m due to the increase in operational efficiency.
The company also made noteworthy strategic moves, including the approval of two wholly owned subsidiaries in the grain-based ethanol and electric vehicles (EV) components sectors.
It has recently signed a contract with the Gujarat government to set up a grain-based ethanol manufacturing facility in the state at an outlay of ₹22.5 bn. The company is hopeful of starting operations at the new facility in the second quarter of FY24.
This is significant as the government has launched the Ethanol Blended Petrol (EBP) program as part of its carbon reduction commitments, which will fuel its growth in future.
#5 Premier Explosives
Last on the list is Premier Explosives.
Premier Explosives is one of the major defence companies manufacturing the entire range of explosives and accessories for civil requirements.
For the June 2023 quarter, the company reported a 107% YoY growth in operating profit margin at 27.4% from 13.2% last year. On a sequential basis, it climbed 71% from 15.9%.
This growth was driven by robust net sales, improved operating efficiency, and a decrease in manufacturing costs, all of which contributed to bolstering the company's margins.
For the June 2023 quarter, it reported a 20% YoY jump in revenue to ₹620 m from ₹518 m a year back. The revenue growth was mainly due to securing back-to-back new order wins from the defence ministry.
The operating profit of the company also surged 191% to ₹1.7 bn. This was driven by the cost optimisation strategy playing out well and a reduction in operating costs.
The net profit for the quarter jumped six times to ₹825 m, supported by a strong order book.
Going ahead, the company aims for a 70:30 revenue ratio split with a greater focus on the defence segment. Looking ahead, the company anticipates a surge in export orders for its rocket motor product.
Which other companies registered the highest growth in operating margins?
Apart from the above, here are other companies that have experienced the highest growth in operating margins in the first quarter of FY24.
Conclusion
Keeping track of companies with increasing operating profit margins can offer several benefits. A rising operating profit margin indicates that the company is becoming more profitable and efficient in its core operations.
This suggests effective cost management and strategic decision-making, reflecting the company's financial health and management prowess. Such companies often have a competitive advantage in their industry, making them more resilient to economic downturns and market volatility.
As a result, they tend to attract positive attention from investors and analysts, potentially driving stock price appreciation.
However, it is crucial to conduct thorough research and analysis to ensure that these companies align with your investment objectives and risk tolerance.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
