India Inc numbers disheartening, firms operating margins by resorting to cost-cutting

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Published: January 27, 2020 1:59:01 AM

If the net profit numbers don’t look so bad — up 6.38% y-o-y — it’s thanks to the lower tax rate, like at Larsen &Toubro, for example.

At PVR, the growth in footfalls was only 1% y-o-y while same-store footfalls actually contracted 6% y-o-y. At Avenue Supermarts, same-store sales rose by 6-7% y-o-y.

The first lot of numbers from corporate India for the three months to December 2019 is disheartening because even a festive quarter didn’t help alleviate the stress. Companies are struggling to grow their toplines — revenues for a sample of 170 companies (excluding banks and financials) grew just 1.1% year-on-year.

However, many have been able to protect their operating margins by resorting to cost-cutting measures and added help from benign commodity prices. The expenditure for the same set of companies went up by just 0.79% y-o-y allowing for a 28 bps rise in operating profit margins.

If the net profit numbers don’t look so bad — up 6.38% y-o-y — it’s thanks to the lower tax rate, like at Larsen &Toubro, for example. The tax outgo for the 170 companies was down 15% y-o-y. If one excludes the profits of TCS and RIL, the profit growth is just 5.2% y-o-y since large commodity players such as JSW Steel posted a sharp drop in profits of 88% y-o-y.

The struggle to grow the topline can be seen across businesses. At Asian Paints, for instance, the growth in domestic decorative was a dull 3% y-o-y since volumes grew in low double digits that implied realisations must have weakened. At the other end of the spectrum, L&T reported a 3% y-o-y fall in core E&C revenues and this coupled with other factors resulted in a poor consolidated profit. At UltraTech revenue growth was virtually flat, although realisations shot up because volume growth was weak. JSW Steel also posted poor revenue numbers with sales falling 12% y-o-y. At PVR, the growth in footfalls was only 1% y-o-y while same-store footfalls actually contracted 6% y-o-y. At Avenue Supermarts, same-store sales rose by 6-7% y-o-y.

Managements remain circumspect and some like the one at Asian Paints pointed out the demand environment was challenging. The TCS top team was also conservative while speaking out the outlook, noting that it would not be easy to replicate the growth rates of the past. Large companies such as Reliance Industries reported very ordinary numbers across businesses — except for retail. The accelerated fall in capex, however, enabled the company to turn free-cash-flow positive.

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