Earnings season: Stunded sales hurt profits at India Inc

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Published: October 29, 2019 12:14:30 AM

Total expenses, however, fell by 0.8% y-o-y on the back of a sharp decrease of 255 basis points in the raw materials bill, allowing operating profit margins to expand 130 basis points y-o-y.

The more relevant profit before tax is up only 6.6% y-o-y. (Representative images)The more relevant profit before tax is up only 6.6% y-o-y. (Representative images)

Sales for India Inc have stalled in the September quarter partly due to weak volumes and partly due to the near absence of pricing power. However, lower expenses and taxes have helped boost profits.

Revenues for a sample of 286 companies have been virtually flat, rising 0.8% y-o-y. Total expenses, however, fell by 0.8% y-o-y on the back of a sharp decrease of 255 basis points in the raw materials bill, allowing operating profit margins to expand 130 basis points y-o-y. The rise in net profits driven by a lower tax bill — down 29% y-o-y — and more other income camouflage the sluggishness in corporate India which can be seen in the subdued loan growth at virtually every bank and NBFC.

The more relevant profit before tax is up only 6.6% y-o-y. At SBI, for instance, the corporate book grew just 25 y-o-y. While Larsen & Toubro reported good order inflows, up a smart 20% y-o-y, much of it was won internationally with the domestic wins staying subdued. This suggests the capex cycle isn’t turning just yet.

Topline growth has been stunted across companies. While at JSW Steel, revenues fell 18.5% y-o-y as net realisations dropped 16% y-o-y, at Maruti Suzuki, sales were down 24% y-o-y. Two-wheeler manufacturers struggled in a weak demand environment: At TVS Motor, revenues were down 13% y-o-y on the back of volume decline of 19% y-o-y while at HeroMotoCorp, they dropped nearly 17% y-o-y.

Although volumes at Asian Paints rose an estimated 15% y-o-y, domestic revenues disappointed at an increase of 9% y-o-y, below estimates; analysts attributed this to a deterioration in the product mix.

The consumer space, too, struggled as demand in rural India remained muted; volumes at Marico were poor, up just about 1%, resulting in flat sales while at Hindustan Unilever (HUL), volumes grew 5% y-o-y. Subdued consumer spends in urban India hurt retailers; Shoppers Stop reported a 2% y-o-y fall in same-store-sales led by a 10% fall in footfalls.

Smaller companies such as Rallis reported weak revenues, up just 4% y-o-y.

At Havell’s, revenues increased by just 1.8% y-o-y, while at Crompton Greaves Consumer, they were up just 4% y-o-y. Volumes at ACC were lower 2% y-o-y.

While softer commodity prices helped some businesses rein in costs and protect their margins, there were several cases where margins contracted. At Rallis, the numbers were marked by a sharp 600 bps contraction in gross margins and a 300 bps fall in operating margins. At Shoppers’ Stop, Ebidta (earnings before interest depreciation and tax) margins contracted 70 bps y-o-y. At Tata Motors, the commercial vehicles business remained under pressure and consequently, the standalone Ebitda margin crashed to to 3.8% from 11.4% a year ago.

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