Earnings season: India Inc reels under input costs, margins pressured

By: |
Mumbai | Published: October 29, 2018 5:45:18 AM

Companies have found it difficult to push through volumes and very few have been able to take price hikes to pass on the increase in raw material costs.

Most companies have either missed estimates or reported results in line with expectations; there have been virtually no big surprises. (Representational photo)

“We have taken price hikes in Q2 but there are limitations in a competitive market, there is a strong down-trading”. This observation by Rajiv Bajaj, managing director, Bajaj Auto, sums up the business environment today. It’s a tough market in which demand is modest, the competition intense and raw material costs high. Most management teams, like the one at Asian Paints, say domestic demand remains challenging. Indeed, that is clearly reflected in the performance of India Inc so far in the September earnings quarter which has been very ordinary. Most companies have either missed estimates or reported results in line with expectations; there have been virtually no big surprises.

If Reliance Industries and TCS are excluded from the sample of 236 companies, the increase in revenues would be just 14% while the net profits would fall 4.6%.

Companies have found it difficult to push through volumes and very few have been able to take price hikes to pass on the increase in raw material costs.

At Maruti Suzuki, the gross margin may have improved by 70 basis points y-o-y but there was a one-time benefit from R&D services which was over 100 basis points.
The company’s revenues rose by just about 3.5% y-o-y in Q2FY19 even though volumes were strong.

Nonetheless, some companies like TVS Motors are taking small price hikes. Net profits at HeroMotoCorp were down 3.4% y-o-y. The two-wheeler manufacturer reported operating profits or ebitda that were lower by 5% year-on-year following weak gross margins which were impacted by input cost pressures. Bharti Airtel reported a weak quarter with the tariff war continuing; the India business posted a net loss of Rs 1,646 crore, wider than the loss of Rs 940 crore in the preceding quarter. The down-trading is hurting realisations and revenues. Intense competition has also hurt Interglobe Aviation where yields came in lower than expected and fuel costs hurt the bottom line; the company reported a PBT loss of Rs 990 crore.

Businesses in the core sector are doing reasonably well but profitability remains under pressure. At ACC, ebitda rose by only 7% y-o-y in the September quarter, below estimates even though volumes were up a reasonably good 10% y-o-y. UltraTech’s earnings were below since it reported a drop in ebitda of 4% y-o-y and also a fall in the net profit. At BHEL, order inflows were reasonably good in Q2FY19 on a weak base but margins were disappointing. JSW Steel’s performance was in line with estimates but the outlook, analysts point out, is not so optimistic because while prices have softened raw material costs remain firm.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, 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.

Next Stories
1Browder’s laundering complaint shows $97 million Nokia payment
2Paytm’s parent firm One97 Communications widens net loss to Rs 1490.4 cr
3Café Coffee Day aims to have a network of 2,500 stores in 7-8 years