With expenditure contracting more than the fall in revenues, operating profit margins for the same expanded 500 bps y-o-y.
Festive fervour, a sharp rise in commodity prices, a base effect and stupendous performances from IT majors have combined to make for a good Q3FY21 report card. Earnings season thus far has been full of surprises with most companies beating Street estimates. Unlike in Q1 and Q2, this time around almost all companies have grown their revenues smartly, some by pushing through bigger volumes but many by taking price increases to pass on the higher cost of inputs.
Thanks to rising steel prices globally and a pick-up in local demand, JSW Steel reported a 21% y-o-y increase in revenues. At Ultratech, volumes were up 14% y-o-y on the back of demand from rural and urban housing and government-led infrastructure. Bajaj Auto cashed in on an 8% y-o-y improvement in net average selling prices. Again, volumes at Asian Paints jumped an astonishing 33% y-o-y pushing up revenues by nearly 27%y-o-y on the back of both pent-up and festive demand.
Again several larger organised sector companies were able to take away business from smaller players whose supply chains were disrupted. Even though they came off a low base, revenues at Havell’s rose a remarkable 39% y-o-y as the company gained market share from smaller players. The headline numbers, for a sample of 184 companies (excluding banks and financials) though, are skewed by the steep 22% y-o-y fall in the revenues of Reliance Industries.
Even as revenues rose, companies continued to cut costs and that aided margin expansion. Bajaj Auto, for instance reported a 27% y-o-y increase in Ebitda as it optimized fixed cost and spent less on employee costs. Thanks partly to better cost controls Avenue Supermarts was able to expand Ebitda margins by 2 bps y-o-y. With expenditure contracting more than the fall in revenues, operating profit margins for the same expanded 500 bps y-o-y. To be sure a big jump in other income also boosted profits.
Retailers were among the worst hit post the pandemic but, with store operations nearing normalcy, Avenue Supermarts bounced back to post a good increase in revenues of 10% y-o-y with demand for general merchandise picking up. Discretionary spends, however, don’t seem to have seen as sharp a recovery. At Shoppers’ Stop, footfalls were down 50% y-o-y resulting in a fall in revenues of 32% y-o-y although many of the restrictions had been eased.
The IT pack put on a spectacular show posting strong revenues and margins on the back of robust spending by clients, a ramping up of large deals and what analysts are calling a ‘budget flush’. Managements sound confident they can keep up the good work given the big deal wins they’ve seen. Infosys has raised FY20-21 revenue guidance to 4.5-5% from 2-3% earlier; CEO Salil Parikh said the company was gaining market share in a growing pie. In a quarter in which it took wage hikes, TCS reported strong Ebit margins of 26.6%.