The upturn in the economy and a favourable base effect notwithstanding, the Q4FY18 earnings for the Sensex set of companies may just about grow in double digits. That’s primarily because a few key sectors have been under pressure.
The upturn in the economy and a favourable base effect notwithstanding, the Q4FY18 earnings for the Sensex set of companies may just about grow in double digits. That’s primarily because a few key sectors — state-owned banks and telecom — have been under pressure. The good news is that most companies have settled down in the new GST regime although exporters remain hobbled by delays in refunds. FMCG companies, in particular, should do well, now that supply chains are running smoothly; they would benefit from GST credit. In general, top lines should grow well — it could be about 15% year-o-year for India Inc — given prices of most commodities are fairly stable and companies have been able to push through volumes. Analysts at Kotak Institutional Equities (KIE) estimate Sensex earnings, for the three months to March, will grow just a shade under 10% year-on-year. Makers of CVs, passenger vehicles, tractors and two-wheelers have reported reasonably good volumes indicating demand in rural India is fairly strong. At Ashok Leyland, for instance, M&HCV volumes were up 15% y-o-y. Maruti Suzuki should post a good set of numbers for Q4FY18; PV volumes increased nearly 11% y-o-y during the quarter. As such, auto manufacturers report a good growth in their top lines as also margin expansions.
Again, cement volumes have been good, rising by about 20% y-o-y during the March quarter while the production of steel was up by about 3.5% y-o-y. The capital goods space, too, saw orders increase meaningfully though the increase in the production of consumer durables was not as exciting. As a whole, the manufacturing sector grew by about 9% y-o-y during Q4FY18, a robust number. IT companies, which have been unable to command too much pricing power for a couple of years now, are expected to post only a modest sequential growth in revenues of between 0.5% and 2.2% on a constant currency basis. Those firms that signed on big clients in previous quarters would see the benefits flowing in while top-tier firms should have mined their clients better. The depreciation of the dollar against the euro and the pound will benefit some companies. The tariff war and falling ARPUs (average revenue per user) — which could decline 8-9% — will continue to pressure the top lines and bottom lines of Bharti Airtel and Idea Cellular; the smaller ARPUs together with the impact of the cut in the international termination rate (ITR), effective February 01, could see revenues fall sequentially. The stress in India Inc can be seen in the high leverage.
A CARE study shows that a clutch of 2,314 companies (excludes banks and finance companies) had accumulated an outstanding debt of Rs 20.02 lakh crore as of March 2017. The interest cover ratio (ICR), defined as the ratio of PBDIT to interest payments, was more or less stable at 3.90 for the nine months to December, 2017 compared with 3.92 in FY17. Around 44% of the companies, which had an outstanding debt of Rs 8.75 lakh crore, reported a better ICR; the remaining 1,042 companies saw a decline in ICR and had a combined outstanding debt of Rs 11.27 lakh crore. Corporate India’ performance in Q3FY18 was reasonably good. For a sample of close to 2,600 companies (excluding banks and oil marketing companies), net sales rose by about 11% y-o-y, thanks to a very favourable base since Q3FY17 was the demonetisation quarter. Net profits rose by close to 16% y-o-y with a big boost from other income. With costs reined in, operating profit margins were up by about 18 basis points y-o-y. The share of raw materials to sales increased by just 27 basis points y-o-y compared with 78, 44 and 186 basis points in the three previous quarters, respectively.