With Bharti Airtel’s profits crashing 72% year-on-year and those for Interglobe Aviation falling nearly 25% y-o-y, earnings season continues to be disappointing. In fact, most companies — Hero MotoCorp, Dr Reddy’s Labs, Exide, Arvind, Emami, Asian Paints, GSK Consumer, Nestle and Gujarat Pipavav — have all turned in very modest numbers for the three months to March.
While aggregate revenues for a clutch of 378 companies (excluding banks and financials) have risen 11.5% year-on-year, the growth would have been far more muted without the presence of Reliance Industries and Hindustan Zinc.
Revenues have seen only a very sedate growth at most corporates partly because of the lingering effects of demonetisation which dampened demand, especially for two-wheelers and FMCG products. IT services companies have been slowing down for several quarters now and reported muted increases in their top lines. Bharti Airtel’s India wireless revenues fell 11% y-o-y driven down by lower tariffs in a highly competitive environment. Yields at Interglobe Aviation dropped 6% y-o-y while at Dr.Reddy’s consolidated revenues fell 4% y-o-y. At Godrej Properties, net sales were lower by 16% y-o-y.
Idea Cellular, which reported its earnings on Saturday, posted a net loss of Rs 328 crore in the January-March quarter. This is the second consecutive quarter that the company posted losses, reeling under the impact of Reliance Jio’s free offer.
Those companies that rolled out promotional schemes during the quarter to mitigate the impact of demonetisation — Havells for instance — incurred higher costs. However, the bigger increase in costs came from the rising prices of raw materials; higher fuel prices hurt Interglobe Aviation and an increase in input costs dented HeroMotoCorp’s operating profits. At GSK Consumer, gross margins contracted 200 basis points y-o-y, while at Nestle they fell nearly 300 basis points. Even a high-end player like Asian Paints managed to grow its operating profit by just 2% y-o-y.
Exide’s gross margins contracted 180 bps y-o-y resulting in a fall in the Ebitda of 2% y-o-y, as the company was unable to grow volumes meaningfully. Companies, however, took pains to keep costs and checks; at Godrej Properties, for instance, lower operating costs helped push up the Ebitda by 33%.
There is no doubt about some bright spots — Eicher Motors, Zee Entertainment, Petronet LNG — but by and large, it is evident corporate India is some time away from a full-fledged recovery.
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Managements expect demand should bounce back in the next few months with the effects of demonetisation wearing off. Hero MotoCorp expects the market to look up in the coming months. There is also the anticipation of a good monsoon and increased infrastructure spends by the government.