Despite the quarter being a festive one, most companies struggled to push volumes; increase in net profit was mostly a result of lower tax rate
Even in a festive quarter, India Inc has struggled to grow the top line, with most companies unable to push through volumes. Most companies have been unable to meet even the tempered expectations though some like Bharti Airtel did well, after many quarters. However, the pain can be seen in that revenues in the three months to December, remained flat Y-o-Y. The increase in the profit after tax, is, mostly the result of the lower tax rate, else, for a clutch of 713 companies, the profit before tax barely grew.
A glance at the results of banks and NBFCs makes it clear that business is dull. Leading lenders have reported a contraction in their corporate loan portfolios. Again, disbursements at NBFCs like Magma Financial, Chola Financial and MMFS have contracted in Q3FY20.
Commenting on the demand, the management at Shriram Transport observed customers were postponing purchases and making do with the existing fleet. Even where purchases were being made, these were, more often than not, used vehicles rather than new ones.
The Sobha management cited modest demand trends as a reason for slower launch activity in Q3FY20.The HeroMotoCorp management, while referring to some positives such as a good monsoon also highlighted that a sustained recovery would take time.
Retailers like Shoppers Stop have barely posted an increase in same- store- sales and even at Avenue Supermarts, these rose by just 6-7% y-o-y. Drug firms like SunPharma reported strong growth in their domestic revenues — up 18% y-o-y but the overall sales growth was pulled down by a poor show in the US where sales fell 3% y-o-y. Again, although realisations at HeroMotoCorp improved 4% y-o-y, revenues fell 11% y-o-y on the back of falling volumes which dipped 14% y-o-y. At GSK Consumer, sales were up just 3.8% y-o-y
Managements remain cautious on sales growth. The TVS management observed, for instance, that the steep price hike for BS-VI vehicles could dampen two-wheeler volumes in H1FY21. TVS’ volumes dropped 17% y-o-y in Q3FY20 driving down revenues by 11.5% y-o-y although the company managed to better average selling prices.
In the absence of robust revenues, it was benign costs that helped businesses expand their margins. For the sample the expansion was 134 basis points y-o-y. At Bajaj Auto the Ebitda margin expanded 230 basis points y-o-y on better gross margins led by lower raw material prices. However, several businesses suffered a contraction in margins. At GSK Consumer, gross margins contracted 130 bps y-o-y while at JSW Energy, the ebitda fell 14% y-o-y in 3QFY20 on account of higher-than-estimated increase in fuel costs. At Tata Motors, smaller wholesale volumes resulting from inventory corrections and an adverse product mix resulted in an ebitda loss for the stand-alone business; M&HCV volumes were down 43% y-o-y.
Managements have drawn attention to the fact that prices of some key commodities are rising. Analysts believe raw material prices will be a drag on Eicher Motors’ margins in the next two to three quarters. Already gross margins contracted 370 basis points y-o-y in Q3FY20,while ebidta margins fell 430 bps, since the company did not pass on the costs. At real estate companies the lower tax rate has helped push up profits. At Indian Hotels, for example, the lower tax rate and higher other income drove a 69% y-o-y increase in net profits although consolidated revenues rose 4% y-o-y.