Fourth quarter FY18: Earnings season off to modest start; rural demand recovering

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

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High cost of inputs hurting firms that are unable to pass on costs to consumers.

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 per cent year-on-year was significantly higher than the 14 per cent 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 per cent 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 per cent, compared with a two-year compounded growth of 6 per cent, 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 per cent —this was thanks to better realisations which rose 5.8 per cent y-o-y, smaller overheads and lower employee expenses.

A 15 per cent 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 per cent 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 per cent year-on-year in Q4FY18, compared with 12 per cent year-on-year in Q3FY18. Operating profit margins expanded 18.72 basis points y-o-y and net profit rose 7.97 per cent year-on-year.

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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 per cent in 2018-19 which indicates an acceleration over the pace last year. While the margin band has been trimmed to 22-24 per cent, analysts believe the demand environment is becoming stronger. While the like-to-like revenues at Shoppers’ Stop in Q4FY18 were lower by 4 per cent year-on-year, it was partly because several stores were being renovated. FE