Cost control boosts profit margins in Q1; results from 169 firms reflect y-o-y increase, sequential drop in revenues

By: |
July 26, 2021 4:15 AM

Companies are dealing with this either by cutting costs where they can or raising prices; not all of them have been able to offset the entire rise input costs with these measures.

Going by the current trend, most economists expect the collections to be at least 12-13% higher.Going by the current trend, most economists expect the collections to be at least 12-13% higher.

Corporate India’s revenue and profit increases in the June quarter appear large against the weak base of Q1FY21 when much of the country was under a stringent lockdown. However, the performance is somewhat less impressive when read sequentially. This is not only due to the partial lockdowns in much of April and May but also seasonal factors which play a part in influencing demand whether for consumables or materials.

Results from 169 early birds (excluding banks and financials) reflect the year-on-year increase and the sequential fall in revenues. At UltraTech, for instance, volumes fell 23% quarter-on-quarter although they increased 47% y-o-y. JSW Steel’s standalone steel sales volumes were up 29% y-o-y but down 11% q-o-q. Sales of staples, too, were impacted; HUL’s volumes were up 9% y-o-y in the quarter but adjusting for the weak base, they were virtually flat. Avenue Supermarts posted a growth in revenues of 31% y-o-y in Q1FY22 but these fell 31% q-o-q.

Elevated raw material costs, which jumped 627 bps y-o-y, have pressured margins for a whole host of companies during the quarter. Companies are dealing with this either by cutting costs where they can or raising prices; not all of them have been able to offset the entire rise input costs with these measures.

At Bajaj Auto raw material costs increased 370 bps q-o-q of which the company has been able to offset 170 bps through price hikes and 100 bps due to rupee depreciation benefits. At HUL, for instance, gross margins fell 140 bps y-o-y to 50.4%, driving down Ebitda margins by 115 bps y-o-y. At Asian Paints, the y-o-y inflation in the raw materials basket resulted in a sharp decline in the consolidated gross margin of 630 bps y-o-y and 475 bps q-o-q. That drove down the Ebitda margin to 16.4% way below estimates. At CEAT, consolidated Ebitda while going up 63% y-o-y fell sharply by 36% sequentially due to lower-than-expected gross margins.

For the sample of 169 companies, operating profit margins shot up by about 440 bps since expenditure increased by a smaller rate than revenues.

Companies, one would recall, were able to restore their supply chains and get their workforces back in place within 4-5 months after the lockdown had been lifted.

As they revived their businesses catering to both current and pent-up demand, larger companies were able to gain share from smaller, less nifty rivals.

Standalone revenues at Asian Paints from domestic decorative paints jumped 96% y-o-y, led by a huge106% y-o-y increase in volumes; one of the reasons for the strong sales numbers — even on the weak base – was the company’s ability to take away share from not just unorganised players but also organised ones. Given the restricted lockdowns and curfews in many parts of the country during the quarter which saw retail outlets closed, even as industrial and construction activity continued, many companies fared better in the B2B segment rather than in the B2C segment.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1‘Quad’ countries to agree on secure microchip supply chains: Report
2Yes Bank-DHFL case: No sympathy, says court, Rana Kapoor’s wife, daughters remanded to judicial custody
3Under CCI lens, Google says Android has led to more competition and innovation