First quarter results reflect pain of pre-GST de-stocking

If one were to exclude RIL which reported its April-June numbers on July 20, net sales grew by only 6.5 per cent and net profit growth remained flat. RIL accounts for nearly 40 per cent of the aggregate revenue of the numbers declared so far

By: ENS Economic Bureau | Mumbai | Updated: July 24, 2017 12:33 am
RIL accounts for nearly 40 per cent of the aggregate revenue of the numbers declared so far. (REUTERS/Shailesh Andrade/File Photo)

The April-June earnings season has got off to a subdued start with businesses disrupted due to pre-GST de-stocking. A sample of 81 companies (excluding banks and financials) saw net sales grow at 14.02 per cent compared to the same period last year while net profit grew 7.56 per cent.

However, if one were to exclude Reliance Industries (RIL) which reported its April-June numbers on July 20, net sales grew by only 6.5 per cent and net profit growth remained flat. RIL accounts for nearly 40 per cent of the aggregate revenue of the numbers declared so far. Similarly, its 36 per cent growth in other income (including exceptional items) to Rs 3,225 crore is almost half of the combined other income of Rs 7,523.67 crore reported by the rest of the firms.

There are nevertheless some encouraging signs. Although Hindustan Unilever (HUL) reported good margins, volumes were flat during the quarter with the management indicating the wholesale pipelines were yet to be fully re-stocked. Analysts said growth was dragged down by sharp de-stocking with virtually no purchases made in June and that this had impacted revenues by as much as 200 basis points.

At Bajaj Corporation, volumes declined nearly 8 per cent y-o-y; gross margins dipped 40 basis points partly due to some increases in costs. Bajaj Auto reported a 6.46 per cent drop in net profit at Rs 923.51 crore from Rs 978.37 crore on a turnover of Rs 6,311,47 crore with operating Ebitda at 18.3 per cent in Q1FY18 compared to 21.2 per cent in Q1FY17. The company also offered post-GST prices mid-June and managed to reduce stock at dealers and for the remaining stock dealers were compensated to the tune of Rs 32 crore during Q1. These put pressure on Bajaj Auto’s motorcycle business in the domestic market and there was a sharp drop in billing in June 2017.

At Ultratech, while volumes in the domestic market were weak declining 1 per cent y-o-y, net sales grew 7 per cent y-o-y on better realisations; this together with the lower costs of raw materials and overheads helped drive up the Ebitda 14 per cent y-o-y. For ACC volumes grew a sharp 10 per cent y-o-y.

Costs of some inputs are rising though prices of a few raw materials remain soft; at ACC, for instance, both freight and fuel charges increased during the quarter. For the industry the earning season saw a mixed bag with Infosys reporting a good set of numbers but TCS coming out with weak numbers. In case of Infosys, revenues and operating margins of 24.1 per cent came in ahead of expectations and the dollar revenue guidance was upped.

However, TCS reported a weak 1QFY18 with modest 0.4 per cent miss in revenues and 100 bps miss in Ebit margin. Revenue growth stood at 2 per cent in constant currency and modest 6.3 per cent on Y-o-Y comparison. On sequential comparison and based on reclassified numbers, BFSI grew 2.3 per cent and retail at 2 per cent, while most other verticals grew in a range of 3.7-7.9 per cent in constant currency.

TCS stated that volume growth was 3.5 per cent qoq during the period implying adverse pricing mix of 1.5 per cent, which the company viewed as largely quarterly volatility. Ebit margin declined sharp 230 bps qoq and 170 bps yoy to a multi-year low of 23.4 per cent. EPS declined 9.4 per cent qoq and 5.2 per cent yoy and was 3.3 per cent lower than estimate largely due to margin miss.

Ashok Leyland, which reported its numbers on July 21missed estimates on the net profit and Ebitda front due to low sales in the medium and heavy commercial vehicle segment. The company’s net profit declined 61.7 per cent YoY at Rs 111.23 crore while operating profit fell 36.5 per cent to Rs 306 crore. Sales during the quarter declined 17 per cent in the MHCV segment. FE

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