Despite some surprises, the many disappointments in the Q2FY18 earnings season so far suggest India Inc is still not out of the woods. The turn in the commodity cycle has helped producers but users of metals and other raw materials have seen costs rise. Revenues at Hindalco, for instance, rose 14% year-on-year, driven up by better realisations from copper while at Vedanta, it rose 36% y-o-y. Demand remains subdued, as reflected in the modest volume increases across sectors, and companies have found it hard to better their realisations. This is despite a very festive season. However, rural markets do seem to have some purchasing power as seen from Maruti Suzuki’s rural sales which shot up by 22% during the quarter. More often than not, margins improvements have come from companies reining in expenses. Hero MotoCorp, for instance, reported a 6.3% y-o-y increase in earnings before interest, tax, depreciation and amortisation (Ebitda) largely led by a reduction in other expenses. At Dr Reddy’s Laboratories, revenues were flat and smaller than anticipated; R&D spends helped rein in costs, else operating margins might have been lower. The competitive intensity in sectors such as telecom has hurt the profits of companies like Bharti Airtel whose earnings fell a sharp 70% y-o-y. Even small companies such as Exide are feeling the impact of competition at a time when demand is subdued. For a sample of 366 companies (excluding banks and financials), revenues in the three months to September rose 11.7%. However, a sharper rise in expenditure left operating profit margins virtually flat and net profits were up a shade under 8% y-o-y.
FMCG players, it would appear, are coming to grips with the GST which was rolled out on July 1 and the supply chains seem to be working well. Most companies have reported an increase in volumes — partially the impact of restocking. Godrej Consumer Products posted a 10% y-o-y growth in volumes. While Hindustan Unilever’s volumes increased 4% y-o-y, they came off a weak base in Q2FY17 when the growth was negative, prompting analysts to conclude demand remains subdued. Marico’s consolidated numbers were below estimates with operating profits up just 2% y-o-y and net profits rising 3% y-o-y. Operating profit margins contracted 70 basis points and would have contracted further had it not been for a big cut in ad-spends and other spends. With cigarette volumes weak, ITC’s numbers were not impressive.
Among the star performers in the September quarter was Maruti Suzuki. The carmaker’s operating profits jumped 21% y-o-y, a demonstration of good operating leverage and a check on costs. The carmaker was able to push sales across rural and urban markets during an early festive season. The infrastructure sector continues to fare poorly. Gujarat Pipavav reported poor results with revenues down 12% on the back of smaller container volumes; profits were lower by 26%.
At JSW Energy, the performance was poor with revenues flat while operating profits fell 8%. At HCC, operating profits fell 24% y-o-y. For all the revival in the commodity space, both JSW Steel and Tata Steel turned in very ordinary numbers. JSW Steel’s operating profits were higher by just 4% y-o-y. Tata Steel’s consolidated results were marred by a poor show from the European arm.