Despite the crash in the prices of commodities over the past year and the consequent reduction in the raw materials bill — down 833 basis points for a sample of 217 companies — India Inc is not able to grow profits meaningfully. To be sure, the fall in prices of crude oil is one reason for the rather muted growth in the top line but even accounting for that, the earnings season so far has seen very few surprises and more disappointments. For instance, despite posting a record refining margin of $10.4, RIL reported an earnings growth of just 4.4% in the three months to June. At GAIL, revenues dropped 6% y-o-y mainly on account of lower gas marketing revenues while profits dropped 32%
y-o-y even though there was no subisdy burden on the company.
As such, analysts have cut their earnings estimates for the next couple of years by 14-22% thanks to the bleak outlook for commodity businesses and doubts on the offtake of LNG volumes from RasGas. The country’s core sector continues to fare badly;cement maker ACC’s margins tumbled to a decade-low with weak demand stifling pricing power while Ultratech’s profits slid 6% y-o-y. Management commentary isn’t too encouraging yet either on prices or volumes and have led to downgrades of as much as 18% for FY16. With consumer demand remaining weak, volumes at Bajaj Auto grew just 2.5% y-o-y, resulting in a top line growth of just 6.9% y-o-y, with a fair part being driven by exports. The bike-maker’s bottom line was boosted by sharply higher other income. At TVS Motors, ebitda margins of 6.2% came in well below estimates. Hindustan Unilever (HUL)’s gained from softer commodity prices—gross margins expanded 356 basis points y-o-y—but subdued demand and competition forced the FMCG major to pass on some of the benefits to consumers in the form of power prices and some to the trade as higher promotions.