Q2 earnings: Margins pressured as input costs soar

While IT majors Infosys and TCS turned in fairly good numbers, some of the smaller players didn’t do as well. Hindustan Unilever reported a middling quarter.

By: ENS Economic Bureau | Mumbai | Updated: October 22, 2018 2:56:23 am
Business news, Reliance Industries Q2 earnings, UltraTech Cement Q2 earnings, HeroMotocorp Q2 earnings, Infosys Q2 earnings, TCS Q2 earnings, indian economy, indian express Rising costs are pressuring the profitability at a host of firms.

The September quarter earnings season has got off to a disappointing start with many more misses than hits including those from Reliance Industries, UltraTech Cement and HeroMotocorp. While IT majors Infosys and TCS turned in fairly good numbers, some of the smaller players didn’t do as well. Hindustan Unilever reported a middling quarter.

Rising costs are pressuring the profitability at a host of firms. At cement major UltraTech, profits fell year-on-year in the three months to September as rising energy and logistics cost, coupled with rupee depreciation, drove up expenses by 14 per cent y-o-y.

For a sample of 49 firms (excluding banks and financials) revenues rose 38.1 per cent; excluding RIL, revenues rose just under 20 per cent. RIL accounts for 56 per cent of the total revenues of the sample. Operating profit margins for the quarter fell 332 basis points y-o-y to 16.2 per cent. That’s because of a sharp rise in costs; the ratio of raw materials to sales went up by as much as 457 basis points y-o-y. The profit after tax, for the sample increased just 3.6 per cent, and excluding RIL, they were down 4.5 per cent y-o-y.

To be sure the earnings at HUL were good; however the quality of the earnings growth at the FMCG major was not as good as expected since the pricing component was lower than it has been in the last six to seven quarters. Analysts believe there is competitive pressure in the sector.

Net profits at HeroMotoCorp were down 3.4 per cent y-o-y. The two-wheeler maker reported 5 per cent lower operating profits y-o-y following weak gross margins which were impacted by input cost pressures.

At ACC, consensus estimates was missed, the Ebitda per tonne fell 4 per cent y-o-y with the company reporting lower-than-expected realisations. That has prompted analysts to trim their earnings estimates. At RIL, the gross refining margins during Q2FY19 came in below estimates, though the petrochemicals segment did well.

Infosys reported a good set of numbers with constant currency revenues rising 8 5 per cent year-on-year and large deal wins at an all-time high.—FE

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