After a good start, the earnings season is beginning to reflect the pain in corporate India. Worryingly, analysts believe that much of the spurt in demand for cars or two-wheelers arising from the festive and wedding seasons may subside by the end of December. However, the revival in purchases of residential properties is good news and should create demand for a set of consumer durables.
With the private sector unlikely to make any meaningful greenfield investments for at least two years, demand for equipment could be dull. Nonetheless, the good show put up by cement companies – especially UltraTech which turned in stellar numbers as volumes rose 8 per cent year-on-year — suggests construction activity is picking up.
A good part of the overall demand seems to be stemming from rural and small-town India.
With business in urban areas somewhat dull, sales in the September quarter have been subdued barring a couple of exceptions; the 11 per cent y-o-y fall in the aggregate revenues for 387 companies (excluding banks and financials) was driven inter alia by a 24 per cent y-o-y fall in the revenues at Reliance Industries, a 12 per cent y-o-y drop at Larsen & Toubro, a 66 per cent y-o-y decline at InterGlobe Aviation, and a 7 per cent y-o-y fall at Bajaj Auto.
Margins, therefore, are being eked out of sharp cuts in costs as companies conserve cash and save on everything, from promotional spends to staff. While benign input costs have no doubt helped – raw materials to sales were down a chunky 600 bps y-o-y – total expenditure fell a steep 21 per cent y-o-y.
For the sample, operating profit margins have increased by a whopping 11 percentage points y-o-y. A good example of this is TVS Motors. Though revenues rose just 6 per cent y-o-y during the quarter, the company reported strong operating margins of 9.3 per cent and a 13 per cent y-o-y increase in Ebitda due to falling other expenses, mainly promotion and marketing expenses. Staff costs also fell 8 per cent y-o-y as salary cuts had been initiated in Q2FY21. Nestle reported an Ebitda margin of 25 per cent, a near lifetime high on the back of higher gross margins and lower A&P spends;the company optimised costs but also gained from accounting changes. —FE
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