A favourable base was always expected to boost corporate India’s June quarter earnings; Q1FY18 was the pre-GST quarter which saw companies staying light on stocks. However, beyond the bump from the weak base, the Q1FY19 results don’t reflect any strong recovery; neither is the rise in sales or profits anything to write home about. On the contrary, heightened competition across sectors — from telecom to two-wheelers — is robbing firms of pricing power and they are struggling to pass on the increased costs of raw materials.
For a sample of 585 companies (excluding banks and financials), net sales have risen a strong 21.5 per cent year-on-year; a slower increase in expenditure resulted in the operating profit margin for the sample expanding by about 44 basis points y-o-y driving up the operating profit by 24 per cent. The increase in the ratio of raw materials to sales by 143 basis points is in line with that in the previous three quarters.
Not surprisingly, management commentary is cautious and while there haven’t been any big downgrades to earnings forecasts, there are no upgrades either.
The loss reported by Tata Motors was unexpected. Reliance Industries turned in a reasonably good performance though the Street was disappointed with both the petrochemicals and refining margins. While consumer-centric companies — both staples and durables — did well to report strong volume growth — on a low base —, analysts believe there isn’t too much pricing power expects with the market leaders.
Maruti Suzuki’s smart jump in revenues of 28 per cent y-o-y was the result of a richer product mix and not just better volumes. Asian Paints did well, partly helped by the low base with standalone volumes estimated to have jumped 13-14 per cent y-o-y in Q1FY19. Businesses in the core sector have done reasonably well though surplus capacity in sectors such as cement are keeping prices in check. Larsen& Toubro’s margin expansion of 200 basis points y-o-y, as analysts have pointed out, must be viewed in the context of the low base. —FE