Q4FY18: Earning season off to a modest start

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Mumbai | Published: April 30, 2018 5:07:13 AM

Elevated cost of key inputs seem to be hurting companies that are not able to pass on the costs to consumers

A 15% rise in revenues at Maruti Suzuki shows demand remains fairly strongA 15% rise in revenues at Maruti Suzuki shows demand remains fairly strong

With just one really top class performance so far —from Tata Consultancy Services — the Q4FY18 earnings season has got off to a modest start. The elevated cost of key inputs — metals, pet coke and petroleum derivatives — seem to be hurting those companies that are not able to pass on the costs to consumers. The good news is that the rural environment could be recovering. Although Mahindra & Mahindra Financial didn’t do as well as the Street had expected, loan growth, in the three months to March, at 18% year-on-year was significantly higher than the 14% y-o-y seen in Q3FY18.

Sectors such as construction and real estate too may be looking up it would seem. The increase in volumes at UltraTech — up 32% y-o-y — came on the back of a ramp up of acquired capacities and a favourable base effect.

Nonetheless, adjusting for the new capacities the like-to-like growth would have been a reasonably good 10%, compared with a two-year compounded growth of 6%, indicating a steady increase in demand.

However, higher raw material costs — especially those of pet coke — continue to hurt cement manufacturers.

At ACC, for instance, operating costs increased y-o-y. If the company managed to post better ebitda margins — up 90 basis points y-o-y to 11.9% —this was thanks to better realisations which rose 5.8% y-o-y, smaller overheads and lower employee expenses.

A 15% rise in revenues at Maruti Suzuki shows demand remains fairly strong; both volumes and realisations rose, and if the operating profit margins of 14.2% were a shade below estimates it was thanks to higher advertisement spends.

For a sample of 101 companies (excluding banks, financials and OMCs), revenues rose 16.94% year-on-year in Q4FY18, compared with 12% year-on-year in Q3FY18. Operating profit margins expanded 18.72 basis points y-o-y and net profit rose 7.97% year-on-year.

Given the fierce tariff war, Bharti Airtel’s results were always expected to disappoint; while the Indian operations reported a loss before profit but the firm managed to scrape through with a consolidated net profit of Rs 83 crore. Unless industry tariffs stabilise soon, analysts say it would be hard for the telco, and peers such as Idea Cellular, to be able to turn in a meaningfully better performance. While Reliance Industries posted gross refining margins of $11 per barrel during Q4FY18 which were slightly disappointing, other segments such as telecom, petrochemicals and retail did reasonably well.

TCS reported stellar numbers for Q4FY18, but more important the management appeared confident the performance could be sustained. Although cautious about the key US market, there were indications of an improvement. In fact, Infosys has guided for a fairly good revenue growth — in constant currency terms — of 6-8% in 2018-19 which indicates an acceleration over the pace last year. While the margin band has been trimmed to 22-24%, analysts believe the demand environment is becoming stronger. While the like-to-like revenues at Shoppers’ Stop in Q4FY18 were lower by 4% year-on-year, it was partly because several stores were being renovated.

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