The first lot of numbers from corporate India for the three months to December 2019 is disheartening because even a festive quarter did not help alleviate the stress. Companies are struggling to grow their toplines — revenues for a sample of 170 companies (excluding banks and financials) grew just 1.1 per cent year-on-year (y-o-y).
However, many have been able to protect their operating margins by resorting to cost-cutting measures and added help from benign commodity prices. The expenditure for the same set of companies went up by just 0.79 per cent y-o-y allowing for a rise of 28 basis points in operating profit margins.
If the net profit numbers don’t look so bad — up 6.38 per cent y-o-y — it is thanks to the lower tax rate, like at Larsen &Toubro (L&T), for example.
The tax outgo for the 170 companies was down 15 per cent y-o-y. If one excludes the profits of Tata Consultancy Services (TCS) and Reliance Industries (RIL), the profit growth is a mere 5.2 per cent y-o-y, since large commodity players such as JSW Steel posted a sharp drop in profits of 88 per cent y-o-y.
The struggle to grow the topline can be seen across businesses. At Asian Paints, for instance, the growth in domestic decorative was a dull 3 per cent y-o-y since volumes grew in low double digits that implied realisations must have weakened.
At the other end of the spectrum, L&T reported a 3 per cent y-o-y fall in core engineering and construction revenues and this coupled with other factors resulted in a poor consolidated profit. At UltraTech, revenue growth was virtually flat, although realisations shot up because volume growth was weak.
JSW Steel also posted poor revenue numbers with sales falling 12 per cent y-o-y. At PVR, the growth in footfalls was only 1 per cent y-o-y, while same-store footfalls actually contracted 6 per cent y-o-y.
At Avenue Supermarts, same-store sales rose by 6-7 per cent y-o-y. Managements remain circumspect and some like the one at Asian Paints pointed out the demand environment was challenging.
The TCS top team was also conservative while speaking out the outlook, noting that it would not be easy to replicate the growth rates of the past.
Large companies such as RIL reported very ordinary numbers across businesses — except for retail. The accelerated fall in capital expenditure, however, enabled the company to turn free-cash-flow positive. —FE
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