Coinciding with the rollout of the GST, corporate results for the September quarter were expected to reflect the disruption in some businesses. Numbers from the early birds show that in the absence of any discernible improvement in demand, competition remains fierce limiting margin expansion and profit growth. An early festive season would have bumped up sales for some consumer durables firms but input costs remain firm and that too has put a cap on margins. The first crop of results reveals some coping well with GST and the disruption in the supply chain, others not so easily.
Colgate Palmolive’s ordinary numbers for the quarter, with profits falling 2 per cent year-on-year, suggest a slower-than-expected recovery in the supply chain. Post-GST restocking was expected to drive volumes but the firm reported a 0.9 per cent drop in sales volume. This is smaller than the fall in the two previous quarters of around 3-5 per cent. Bajaj Corp appears to have coped better, reporting a rise of 5 per cent y-o-y, with volumes growing as the re-stocking improved.
Retailers such as Avenue Supermarkets suffered somewhat due to the GST-led pricing of products which impacted the overall selling price of products. The retailer reported a Q2FY18 revenue growth of 26 per cent, below estimates and consequently, analysts have trimmed revenue estimates by 1.2-1.4 per cent over FY18-20 since they expect this trend will continue to impact the company.
Not too much can be gleaned from the initial crop of results. The sample is small and skewed with the presence of heavyweights such as Reliance Industries (RIL) and Tata Consultancy Services; moreover, several sectors — telecom, heavy automobiles, infrastructure and pharma — do not have a presence. For a sample of 57 firms (excluding banks and financials) operating profits have risen a smart 20 per cent y-o-y on the back of a good rise in sales which rose by 13.7 per cent y-o-y and a rise in costs of just 12.3 per cent y-o-y. However, net profits have risen just 5.3 per cent y-o-y, thanks to a sharp jump in depreciation of 37 per cent y-o-y.
Cement companies fared well during the quarter. While the 18 per cent y-o-y volume jump at Ultratech reflects the acquisition of cement assets from the JP Group, the firm nevertheless earned good blended realisations in most markets. ACC reported a top class performance with strong sales volumes, up nearly 18 per cent y-o-y —similar to that in three previous quarters.
That Wipro chose to tone down revenue guidance for Q3FY18 to 0-2 per cent, although the September quarter numbers were reasonably good, suggests lack of confidence. Commentary from TCS sounded more cheerful; the IT major reported in-line numbers with a rise in operating margins but constant-currency revenue growth of a modest 1.7 per cent, weak for a seasonally strong quarter.
While manufacturers of consumer durables are yet to announce their results, it would appear from Bajaj Finance’s growth in assets of 38 per cent y-o-y, during the quarter, consumers are willing to borrow to fund purchases. FE