From Biocon, Maruti Suzuki, Nestle, Dr Reddy’s Labs and TVS Motors to a host of smaller companies like Crompton Greaves and Rallis, results for Q1FY22 have barely met the Street’s expectations. However, producers of metals like JSW Steel have seen their profits soar while IT players have done reasonably well. Larsen & Toubro reported a good set of numbers with the engineering behemoth seeing an uptick in ordering prospects.
The Q1FY22 numbers must be read in the context of the very weak base from a year-on-year perspective and a slightly strong base effect on a quarter-on-quarter basis. Net sales have fallen sequentially both for consumer and industrial businesses, not surprising given the local lockdowns across the country during the quarter.
At TVS Motors, revenues declined 26 per cent q-o-q while at Crompton Greaves, they were down 28 per cent as lockdowns impacted revenues. Maruti Suzuki volumes fell 28 per cent q-o-q. UltraTech reported a 23 per cent q-o-q drop in volumes while at JSW Steel, they were down 11 per cent. Gross margins for a host of companies were under pressure as raw material costs remained high. At HUL, for instance, gross margins fell 140 bps y-o-y to 50.4 per cent driving down Ebitda margins by 115 bps y-o-y.
What stands out is that even after the considerable cost cutting in FY21 companies continue to eke out savings by trimming expenses. At Vedanta, for instance, costs were muted across divisions.
The concern is that rural demand might not be as resilient as in the last couple of years, given many areas were badly hit during the second wave. Lenders like Mahindra & Mahindra Financial Services, which have a fair bit of exposure to rural India, are reporting weak numbers.