Net Margin

## What it measures Net margin (net profit margin) is one of the most-used profitability ratios. It is net profit after tax divided by total revenue, shown as a percentage. If a company earns ₹100 of revenue and ₹12 of net profit, its net margin is 12% — meaning 12 paise of every rupee of sales survives all costs, including operating expenses, interest, depreciation and tax, to reach shareholders.

## Where it sits among the margins Net margin is the *last* and most comprehensive margin in the chain: gross margin (after cost of goods), EBITDA/operating margin (after operating costs), and finally net margin (after interest and tax). Because it captures everything, it reflects not just operating efficiency but also a company's debt load (interest) and tax position. A great operating business with heavy borrowing can still show a thin net margin.

## Reading it in the Indian context Margins vary enormously by industry, so compare like with like. Indian IT services and FMCG companies routinely post net margins in the high teens to 20%+, while retail, infrastructure and commodity businesses run in low single digits on far higher volumes. A jeweller or a fuel retailer with a 2% net margin can still be excellent if it turns capital fast. The right benchmark is the company's own history and its direct peers on NSE/BSE.

## Watch-outs - One-offs distort it: gains from selling an asset, tax write-backs, or impairment losses can swing net margin in a single quarter. Look at the recurring, operating picture too. - Tax-rate shifts (e.g. India's lower 22%/15% corporate-tax options under Section 115BAA/BAB) can lift net margin without any operational improvement. - Pair it with ROE and cash flow: a healthy net margin that doesn't convert to cash, or that comes with falling return on equity, deserves scrutiny.

Bottom line: rising net margins over several years, driven by genuine operating leverage or pricing power rather than accounting quirks, are a hallmark of a quality compounder.