Don't feel low about low margins

In simple terms, margins mean the amount of revenue a business can turn into profits. Suppose a business earns Rs 10,000 crore in revenue. But it has to spend around Rs 8,000 crore on operating expenses, interest payments, taxes, etc. That means, of that Rs 10,000 crore, it can count only Rs 2,000 crore as profits and has a margin of 20 per cent (Rs 2,000 / Rs 10,000). So, high margins mean an efficient business, and low margins mean the business deserves the inefficient tag. Right? Well, not quite so. Efficiency is important, and as an investor, you should be a stickler for both when picking your stocks. But margins are often dependent on industry dynamics. In some industries, low margins does not equate to a bad investment. Take the example of the retail segmen

This article was originally published on January 25, 2023.