Evidence on the ground suggests companies are having a difficult time pushing volumes and raising prices
With just two good performances in TCS and UltraTech, the earnings season has got off to a sedate start. To be sure, it’s early days yet but apart from a recovery in the telecom space, the Street isn’t expecting much. The evidence on the ground — especially sales volumes in the automobile sector — suggests that companies are having a difficult time pushing volumes and raising prices. That’s seen in the contraction in operating profit margin (OPM) for a sample of 80 companies (excluding banks and financials). The OPM contracted 75.4 basis points year-on-year.
Management commentary suggested that demand was likely to pick up after the elections, especially for materials such as cement, as more housing and construction projects would take off. While the Street had estimated weak results for companies such as Maruti Suzuki and Hero MotoCorp, the numbers were nonetheless disappointing. Indeed, despite the presence of several technology heavyweights in the universe, the profits fell 30% y-o-y on the back of an increase in the top line of 16.14% y-o-y. While Maruti’s revenues grew at just 1.7 % y-o-y, at Hero they fell close to 8% y-o-y.
The Street was impressed with Tata Consultancy Services’ (TCS) performance, given the software major reported a strong growth in constant currency revenues, up nearly 13% y-o-y and because the increase came from virtually all verticals. However, there was some disappointment with Infosys’ results since the top line growth came primarily from just one single vertical.
Moreover, the Bengaluru-based firm’s Ebit margins fell 320 basis points y-o-y and the guidance for 2019-20 was also somewhat subdued. ACC’s results were a miss and came in below estimates with revenues growing at 8% y-o-y and operating profits rising 9% y-o-y; the adjusted net profit fell 3% y-o-y. ACC’s volumes increased 5% y-o-y in the quarters lower than the industry level growth of around 8-10%, analysts pointed out. However, UltraTech reported strong volume growth — which drove up stand-alone revenues by 18% y-o-y — and this, together with lower-than expected fuel, power and other costs helped boost the bottom line.
While RIL’s retail business did reasonably well, the slowing momentum in the telecom business was a bit of a disappointment. Looked at sequentially — or in comparison with Q3FY19 — the stand-alone Ebitda and the adjusted net profits were lower, and reflected the weak performance of the downstream business.
Tata Global Beverages reported a bland set of stand-alone numbers with weak realisations. The elevated commodity prices resulted in a steep 280 bps fall in gross margins while Ebitda margins also fell 230 bps y-o-y.