The earnings season has got off to a modest start with software companies reporting a muted set of numbers. Results of early birds suggest topline growth is tapering off as inflation has eased and demand for some categories of goods remains subdued. However, margins seem to be improving as cost pressures have eased.
The big disappointments so far have been Avenue Supermarts, Bandhan Bank, HCL Technologies and Rallis.
For a sample of 61 companies (including banks and financials) net sales are up 11% year-on-year, the slowest increase in at least four quarters. Operating profit margins, however, have come in at 24%, expanding by 104 basis points y-o-y. Net profits, too, have grown at a decent 16% despite a sharp jump in the interest bill.
Operating profit margins at Avenue Supermarts have shrunk by 133 basis points y-o-y, leaving the increase in operating profits at an anaemic 2.8% y-o-y. Although revenues are up 18%, CEO &MD Neville Noronha said gross margins are lower mainly due to a smaller sales contribution from apparel and general merchandise.
At Tata Consultancy Services, sequential revenue growth in the June quarter is flat in constant currency terms, while a hike in wages has resulted in a sequential drop in operating margins of 130 basis points. The good news is that deal wins have been strong at $10 billon-plus for the second consecutive quarter.
Management commentary said the demand environment is weak since clients are re-prioritising spends and focusing on business-critical programmes. The TCS management is cautious, saying it is unable to see visibility on demand recovery, whereas HCL Tech is more confident, saying it expects demand to recover soon. The relatively small additions to headcounts at IT companies confirm they are staying cautious in a difficult environment.
At Wipro, it was another weak quarter, with the company reporting a sequential revenue decline of 2.8% in constant currency terms, although the software major has been able to defend its margins. Analysts said the muted guidance for the September quarter is not encouraging. HCL Tech missed Street estimates on all fronts, with margins falling 120 basis points sequentially. While it has retained its full-year revenue growth guidance of 6-8%, analysts believe this is unrealistic.
Initial numbers from lenders show fairly good loan growth, but some contraction in margins. Federal Bank has reported strong loan growth and a good increase in other income. Analysts at ICICI Securities noted that the profits are fairly good despite a sequential fall in net interest margins and a rise in provisions. At Bandhan Bank, however, profits have fallen 18.7% y-o-y. CEO &MD CS Ghosh attributed the impact on profitability to rising operating expenses.
JSW Energy posted a 48.27% fall in consolidated net profit, below estimates, impacted by expenses incurred for acquiring Mytrah Energy and Ind-Barath Energy. The company’s revenues are down 3.25% y-o-y, but operating profits have risen 18% buoyed by contributions from renewable energy capacity additions from Mytrah.
JustDial’s revenues for Q1FY24 have grown at 33% y-o-y, slower than the 40% increase in the March quarter. Operating margins at 14.9% are, however, better than the 14.4% in the March quarter. Rallis India’s profits in the June quarter are slightly lower y-o-y on the back of weak revenues. MD&CEO Sanjiv Lal said high market inventories, a steep fall in prices as also the delayed monsoon impacted the crop care business.