India Inc weathers tumultuous Q1 – software firms and FMCG players acquit themselves; reviving demand a challenge

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Published: July 27, 2020 7:45 AM

Britannia, which turned in a strong performance in Q1FY21 as it was able to overcome logistical challenges to meet the surging demand, should continue to do well even after the unlocking.

JSW Steel reported a loss in the quarter, the first since Q3FY16, on the back of a 25% fall in shipments and a 22% drop in realisations. JSW Steel reported a loss in the quarter, the first since Q3FY16, on the back of a 25% fall in shipments and a 22% drop in realisations.

In a quarter when business was impacted by a nationwide lockdown, a shortage of workers and a broken supply chain, India Inc nonetheless displayed resilience. From here on, restoring the supply chain, will, however, be easier than reviving demand.

The star performers in the three months to June, among the early birds, were the software firms but makers of food products and consumer goods also executed efficiently to cash in on demand, much of which surfaced in June as consumers made pent-up purchases. With migrant labour making its way back to work at factories, engineering majors like Larsen & Toubro (L&T) would be aiming for higher levels of execution in the coming quarters; at L&T the workforce has increased to within 20% of the company’s peak requirements. Britannia, of course, managed to resume operations at most of its manufacturing facilities in the very first week of the lockdown.

A stellar set of numbers from Infosys and a rich $7-billion deal haul at TCS is evidence the country’s IT sector will bounce back quickly; the TCS management is confident it can match last December quarter’s rupee revenues in the coming winter quarter. While staples businesses were not expected to fare too badly, Hindustan Unilever’s volumes — a fall of only 7% y-o-y — were reassuring, with the management attributing it to faster increase in rural demand. MD & CEO Sanjiv Mehta has, of course, cautioned the near-term outlook remains uncertain and that it is difficult to estimate market growth and demand. Demand for certain food products, however, could remain strong.

Britannia, which turned in a strong performance in Q1FY21 as it was able to overcome logistical challenges to meet the surging demand, should continue to do well even after the unlocking.

Companies have managed to rein in costs, wherever possible, to protect their margins. Despite slower volumes which fell 33% y-o-y, ACC’s results beat expectations as the company was able to bring down costs; the costs per tonne fell 7% y-o-y as the lower freight, power and deferment of certain flexible costs more than offset higher fixed costs.

Bajaj Auto reported better-than-expected gross margins even as revenues fell 60% y-o-y, thanks to an expected plunge in volumes. With user-industries virtually shut, steelmakers bore the brunt of the inactivity.

JSW Steel reported a loss in the quarter, the first since Q3FY16, on the back of a 25% fall in shipments and a 22% drop in realisations. Analysts are not sure if the company will be able to maintain sales volumes for 2020-21 at the previous year’s levels, as the management has said it would.

Clearly, the core sectors were badly hit, but market leaders shone through. L&T reported execution levels of around 50%, bagging enough orders to maintain its order backlog. Analysts observed the company has shared an order pipeline of Rs 6.3 lakh crore that can potentially help it win about Rs 0.9 lakh crore of additional orders at a historical 15% hit rate.

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