Small and mid-caps see 44% rise in net profits helped by OPM expansions due to lower commodity prices- Jefferies

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BSE Midcap index rising 38.8% and S&P BSE Smallcap Index rising 47.5% during the fiscal year 2024. The same is being supported by the earnings growth being clocked by these companies. The declining commodity prices have benefitted small and mid-cap stocks that saw strong margin expansion drive earnings growth.

For small and mid-cap companies under coverage universe of Jefferies India Pvt Limited, excluding UPL Ltd, healthy operating margin expansion of more than 220 basis points year-on-year drove 44% YoY profit growth. 100 basis point make 1%. Softening commodities, liquidation of higher-cost raw material inventory and firm pricing were key catalysts and 70% of companies under their coverage posted year on year margin rise, suggested Jefferies Q2 Review report.

Also Read- Is Tata Technologies IPO the most talked about issue of this decade? The highest year-on-year margin rise was seen by pipe manufacturers as Finolex Industries Ltd and Supreme Industries Ltd, which was led by stabilizing PVC prices. Softer VAM (Vinyl Acetate Monomer) prices benefited Pidilite Industries while lower gas price on year-on-year basis was beneficial for Kajaria Ceramics. Healthy sales growth of more than 11% for the companies under Jefferies coverage universe was helped by the growth in capex/B2B plays such as Polycab India Ltd, Supreme Industries Ltd and V-Guard Industries, which offset softer B2C offtake as seen in consumer durables and appliances.