Disappointments have outnumbered surprises by a wide margin in the June quarter earnings season with most heavyweights reporting numbers below the already-tempered Street estimates. Among the bigger disappointments have been those of firms like Tata Motors; the automaker’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) fell a steep 45 per cent year-on-year. The state-owned BHEL reported an Ebitda loss on the back of weak revenues and higher provisions. Sun Pharma’s revenues fell a steep 25 per cent y-o-y and gross margins contracted 400 basis points y-o-y, while losses at SAIL widened. At Adani Power, adjusted ebitda came
off 24 per cent y-o-y thanks to a big jump in both fuel and non-fuel expenses.
Pre-GST destocking had an impact on most manufacturers of consumer goods and durables — the contraction in factory output in June reflected this. However, rising raw material costs have also pressured margins with the contraction accentuated by the muted growth in sales. Without the turnaround in metals companies, many of whom like Tata Steel swung from a loss to a profit or posted a smaller loss like SAIL, the aggregate performance is less than ordinary. Several companies have reported losses. Profits for a sample of 869 companies (excluding banks, metals and OMCs) are up just 0.66 per cent year-on-year with operating profit margins down nearly 140 basis points.
Vedanta’s Ebitda, for instance, missed estimates by about 6 per cent due to higher costs; consequently, analysts at Macquarie have trimmed their earnings forecasts for both FY18 and FY19. At Asian Paints, gross margins fell a steep 430 basis points driving down Ebitda margins by 530 basis points y-o-y; at ACC, both freight and fuel charges increased during the quarter. At Exide, lead price inflation hurt gross margins by 50 basis points in Q1FY18 and the trend will continue as lead prices have again moved up in July. Hero MotoCorp’s margins dropped 30 basis points y-o-y due to raw material pressures while at Bajaj Auto, they dropped a steeper 330 basis points y-o-y. JSPL’s numbers were below estimates with steel volumes muted at 4 per cent y-o-y.