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 per cent 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 per cent 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 per cent y-o-y.
Eicher Motors continues to post strong performances; ebitda margins in Q4FY18 expanded 90 bps with the ebitda increasing 38 per cent y-o-y. Realisations in the quarter were up 5.4 per cent y-o-y thanks to a price hike in February.
Players in the core sector 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. FE