Recovery continues to elude India Inc which turned in a mediocre show for the three months to December 2016. The damage from demonetisation apart, companies appear reluctant to expand businesses given there’s a fair bit of surplus capacity going and because visibility on demand is poor. Subdued management commentary from Larsen & Toubro (L&T) suggests the recovery may have been pushed back by at least six to eight months. Following a modest set of numbers from the engineering firm, chief financial officer R Shankar Raman said he didn’t see the headwinds to sustained growth subsiding anytime soon.
Smaller companies, in particular, have fared poorly in the October-December quarter with demonetisation clearly having done some damage. Firms such as Future Enterprises and Usher Agro, for instance, have seen net sales contract in the three months to December, 2016.
At the bigger firms such as Reliance Industries (RIL) and Maruti Suzuki, however, business hasn’t been so bad; sales at RIL were up 9.3% y-o-y while at Maruti, it rose 12.4% y-o-y.
Nevertheless, for a sample of 2,570 companies, revenues in Q3FY17 have risen just 5.4% year-on-year, not so much than the 3.5% y-o-y, 4.8% y-o-y and 4.9% y-o-y, in the previous three quarters. While the headline profit numbers are impressive — a jump of 24% y-o-y — at an absolute level, these are disappointing. Of the total profit before tax (PBT) of R1,09,121 crore —R33, 0855 crore, or over 30%, has come from other income.
The combined profits of firms with a quarterly turnover of R1,000 crore and over have increased 27.4% y-o-y —this is primarily due to the turnaround in the operations of metal players, especially steel. Steel Authority of India (SAIL) narrowed its loss to R795 crore for Q3FY17, from a loss of R1,481 crore in Q3FY16, while Tata Steel reported a profit this time around of R144 crore compared with a loss of R2,127 crore in Q3FY16.
The real estate space appears to have been badly hit by the shortage of cash; at Nitesh Estates, revenues, for instance, fell 87.5% y-o-y. Vikas Oberoi, MD, Oberoi Realty, whose revenues came off by 68% y-o-y, confirmed the residential segment did see a drop in closures with buyers busy assessing their finances in the wake of demonetisation. Oberoi believes the market may have started to recover in January.
Toll revenues at IRB and Sadbhav Engineering reflected a modest impact of demonetisation. Ashoka Buildcon managing director Satish Parakh said the suspension of collections for 23 days, starting November 8, resulted in a 14% y-o-y drop in the company’s revenues. At Bajaj Corporation — which saw a sharp drop in the wholesale channel of 30% — the management said sales of hair oil had dropped 30% y-o-y during the first two weeks post-demonetisation but had picked up in December.
However, Havells, reported a healthy growth in top line of 13% y-o-y in a challenging demand environment; the management incentivised dealers with trade incentives which cost it 100-150 basis points in terms of margins.
Hindustan Unilever saw volumes contract 4% in the quarter which resulted in flat revenues and lower operating profits. PB Balaji, CFO, said business had been hurt by the shortage of cash with the wholesale side disrupted. At Asian Paints, net operating revenues rose just 2% y-o-y while at TVS Motors they went up 3% y-o-y with a marginal increase in realisations.
At Hero Motocorp, Pawan Munjal, CEO and MD, said the industry did witness ‘some negative sentiments’ on impact of demonetiSation. The company sold 12.8% fewer two-wheelers in the December quarter of the current fiscal year compared to the same period last year while sales dropped 12.1% y-o-y.
Atul Daga, CFO of Ultratech Cement, whose revenues dropped 1.4% y-o-y, pointed out that project launches or projects in initial stages had slowed down with home-buyers adjusting to the new payment process. Moreover, expectations of a correction in prices had resulted in decisions being delayed or postponed.
The ratio of raw materials to sales fell 95 basis points in Q3FY17, compared with a fall of 51 basis points in Q2FY17, 55 basis points in Q1FY17 and 8 basis points in Q4FY16.
However, companies with a turnover of less than Rs 100 crore continue to report losses; in Q3FY17 these were Rs 2,938 crore compared with Rs 3,546 crore in Q3FY16.