Rising input costs hurt margins n Higher other income boosts bottomline
With prices of raw materials on the rise, corporates are feeling the pinch. Total expenditure for the first lot of companies, that have reported results for the three months to December, jumped 13% year-on-year, the highest in several quarters.
Business does not seem to be too brisk in an economy hurt by demonetisation — net sales at cement maker UltraTech barely grew. Consequently, the ratio of inputs to net sales — for a clutch of 82 firms — has increased 230 basis y-o-y points in Q3FY17. That compares with a rise of just 41 basis points in Q2FY17 and a fall of 740 basis points and 800 basis points in Q1FY16 and Q4FY16, respectively.
The higher expenses have dented operating margins and despite a good rise in other income net profits are up just 5.33%. Had it not been for other income, profits would have stayed flat. This was particularly true for Reliance Industries which reported weaker-than-expected refining margins at $10.8 per barrel but posted a 33% jump in other income.
Both Tata Consultancy Services (TCS) and Infosys reported a modest set of numbers suggesting the headwinds in the IT sector are strong. The impact of demonetisation was seen in the performance of companies such as Bajaj—which saw a sharp drop in the wholesale channel of 30%. The management sales said of hair oil had dropped 30% y-o-y during 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 Havells’ management incentivised dealers with trade incentives which cost it 100-150 basis points in terms of margins.