Earnings season has got off to a moderately good start with most companies reporting results in line with the Street’s expectations for Q3FY18, with a few disappointments. The numbers, however, need to be seen in the context of the very weak base quarter in Q3FY17 when the acute shortage of cash, following the withdrawal of high denomination notes, disrupted the economy. What has been heartening is the management commentary from Hindustan Unilever which suggests consumer sentiment is improving gradually. But realisations from other businesses suggest there isn’t too much pricing power; at UltraTech, for instance, prices were flat year-on-year and fell 5% quarter-on-quarter. Most heavyweights appear to be adjusting to some change or the other in the environment — either globally or locally which is probably why there are no surprises.
For instance, Bharti Airtel’s profits plunged 39%, missing the Street’s estimates, as the regulator tweaked interconnection charges and the tariff war continued. Moreover, consolidated revenues at Adani Power fell by 11.4% as the utility produced less power due to fuel shortages. Cigarette major ITC didn’t fare too well with revenues coming off a sharp 26% y-o-y on the back of weak volumes. There was nothing exceptional from either of the IT heavyweights Infosys and TCS. The highlight of RIL’s results was the strong performance of the telecom venture which reported a profit. For a sample of 90 companies (excluding banks and financials), revenues rose by 12.2% y-o-y and net profit around 25%. Excluding Reliance Industries, however, the net sales rose just 6.2% y-o-y.
The share of raw materials to sales has gone up by 125 basis points, the highest in three quarters, suggesting higher commodity prices are beginning to pinch. However, total expenditure remains in control and consequently operating profits have risen a smart 16% y-o-y. Surprisingly, there is a contraction in taxes paid out; companies such as Infosys , Bharti Airtel and TCS have seen lower tax outflows. That, together with a 19% jump in other income, have bumped up the net profits.
The smart 11% y-o-y growth in HUL’s volumes, albeit on a very low base, suggests much of the disruption in trade channels following the GST roll-out on July 1 seems to be over. Volumes at UltraTech grew an impressive 37% y-o-y, partly because the company has acquired large capacities. Zee Entertainment did well to notch up a revenue increase of 26% y-o-y, cashing in on the revival in television advertising and gaining market share. Indeed a clutch of consumer-facing companies such as Jyothy Laboratories, Jubilant Foodworks and Bajaj Corporation all posted decent numbers. Jyothy Laboratories, for instance, turned in a very strong performance even after considering the weak base with consolidated revenues growing 12% y-o-y and the ebitda (earnings before interest, tax, depreciation and amortisation) up a good 36% y-o-y. This suggests a pick up in consumer demand.