India Inc’s aggregate performance in Q3FY22 has been disappointing with revenues growing at just 16.7% year-on-year, the slowest pace in the last four quarters. Moreover, net profits for a sample of 1,685 companies (excluding banks and financials) have fallen by 12% y-o-y thanks to a contraction in operating profit margins of 243 basis points y-o-y and a 24% y-o-y jump in interest costs. Also, more companies have reported losses or a year-on-year drop in profits for the quarter than in December 2021.
Except for banks, IT services and automobiles, corporate earnings growth could remain subdued in FY24 as the economy is poised to decelerate sharply. With a few days to go before the end of earnings season, analysts at Jefferies noted that of the 100 companies they analysed for Q3FY23, 40% had reported numbers that were below estimates. Much like in FY23, earnings growth is expected to be dominated by banks and financials in the coming year too.
While Tata Steel reported a surprise loss of Rs 2,562 crore in Q3 FY23 as net sales contracted 6% y-o-y, profits at GAIL plummeted 92% y-o-y due to sharply higher APM and LNG prices as also inventory losses. Net profits at Hindalco fell 31% y-o-y as margins in the aluminium business came in lower. Indus Towers reported a loss of Rs 708 crore while Zomato’s losses widened to Rs 346 crore in Q3 from Rs 63.2 crore a year ago. One 97 Communications’ losses narrowed to Rs 392 crore from Rs 778.4 crore a year ago.
Approximately 544 companies reported a year-on-year fall in revenues; at just 314, this number was smaller in the December 2021 quarter. The reasons for the muted topline performance are primarily softer commodity prices and subdued demand for consumer goods. Although retail inflation has come off its peaks, it remains elevated and continues to hurt households.
Consumption has been particularly weak in rural India and has tapered off post the festive season in urban areas. On-the-ground demand in the hinterland is still badly affected by inflationary pressures. Analysts said smaller government spends on rural schemes and elevated inflation could weigh on sales growth at makers of fast moving consumer goods (FMCG) and discretionary products. The weak rural sales growth since the March 2022 quarter onwards may result in optically better growth from the March 2023 quarter, but demand is muted and consumers are downtrading, they added.