Given a big chunk of the sales of consumer-facing firms emanates from the rural markets, — 50% for motorcycles — it would suggest rural demand is on an uptick.
India Inc will clearly take a little longer to stage a sustainable recovery since the core sector remains stressed but the consumer pack seems to be making faster progress. The results for Q4FY18 have been helped by a favourable base effect — Q4FY17 was the first full quarter post demonetisation — but management commentary from both consumer durables and staples firms has been encouraging. The one key headwind for India Inc is the increasing cost of inputs which are eating into profit margins — raw materials to sales saw a jump of nearly 230 basis points year-on-year for a sample of 348 companies. While some companies have been able to take price increases to pass on the costs — Eicher Motors, for instance, others such as CEAT have not been able to do so due to the keen competition.
Given a big chunk of the sales of consumer-facing firms emanates from the rural markets, — 50% for motorcycles — it would suggest rural demand is on an uptick. The management at Hero MotoCorp believes the demand outlook is encouraging and that the two-wheeler industry should report a volume increase of 9-10% in 2018-19. In Q4FY18, better operating leverage helped the company to offset a 100 basis points rise in input costs — the firm’s ebitda (earnings before interest, tax and depreciation) margins expanded 220 bps, driving up ebitda by 43% y-o-y.
Eicher Motors continues to post strong performances; ebitda margins in Q4FY18 expanded 90 bps with the ebitda increasing 38% y-o-y. Realisations in the quarter were up 5.4% y-o-y thanks to a price hike in February.
Players in the core sectors of the economy remain somewhat stressed. Adani Power’s Rs 650-crore loss was higher than estimates despite adjusting for a one-time income received due to a favourable regulatory order. The losses stemmed from commercial shutdowns at Mundra which is unviable at inflated imported coal prices and also low availability of coal at Tiroda and Kawai. JSW Energy reported disappointing results for the quarter with net losses of Rs 62 crore on the back of a 5% y-o-y fall in revenues; that was due to lower power generation and lower blended realisations, which fell 11% y-o-y.
Siemens’s like-for-like order inflows dropped 4% in the quarter and analysts say the management does not see a pipeline of large projects. CEAT reported results below expectations due to a weaker mix as replacement volumes were slower with the company not able to take a price increase in the two-wheeler segment given the increase in competitive intensity. Meanwhile, in signs that reflect an uptick in demand, the decorative paints business at Asian Paints, for instance, reported a double-digit volume growth, after three quarters of single-digit growth. Arvind Limited reported a smart 16% y-o-y increase in revenues which drove up the operating profits. Volumes for Godrej Consumer’s branded products were up a reasonably good 7%; the management sounds confident it can deliver double-digit volumes and better margins in 2018-19. Jeweller Titan beat the street’s estimates handsomely; revenues rose 12% y-o-y while the recurring profits surged 66% y-o-y, partly aided by hedging gains.
Jubilant FoodWorks reaped the benefits of a clean-up of its operations by which it weeded out loss-making stores. The QSR reported a rise in same store revenues of 26.5% y-o-y — the highest in six years with the management focusing on driving value on a daily basis. The operating profits at battery-maker Exide were up a strong 29% y-o-y in Q4FY18, on the back of an equally impressive 24% increase in revenues driven by double-digit volumes in the auto segment. The company was able to take price hikes to pass on costs. Evidence of a pick-up in consumer demand comes also from lenders such as L&T Finance Holdings which reported a strong 28% y-o-y increase in loan growth. This was driven by a strong rural business, up 64% y-o-y and a 100% plus increase in housing lending. Revenues at Nestle grew a healthy 11%; more important it demonstrated pricing power as gross margins expanded 462 basis points y-o-y.