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Journalism of Courage
It’s been a dull earnings season for India Inc with the smaller increase in costs and a jump in other income saving the day. The topline growth has been muted indicating weak demand and the inability of companies to hike prices beyond a point.
Despite expenses having being reined in, operating profit margins (OPM) have seen only a modest expansion. While input costs are down, at 13.4 per cent year-on-year (y-o-y), employee costs have risen by the slowest in at least four quarters.
The topline growth for a sample of 2,589 companies (excluding banks and oil marketing companies) grew just 2.6 per cent y-o-y, a sign of firms’ inability to push through volumes or price hikes or both.
To try and protect their margins, companies have worked to rein in expenses; the softening commodity prices have helped lower costs; the ratio of raw materials to sales has dropped a sharp 246 basis points y-o-y.
Consequently, net profits are up 7.5 per cent y-o-y.
Excluding other income, which has jumped 25 per cent y-o-y, the growth in net profits would be flat. Contrary to expectations, interest costs have risen more or less in line with that in the previous two quarters.
The profit picture changes dramatically if lenders and the oil marketing companies are included with net profits up a good 44 per cent y-o-y for a sample of 3,010 companies. However, once again it is the smaller growth in expenses, together with a steep jump in other income, that has lifted profits since the topline has gone up by by only 7.5 per cent y-o-y.
The fall in the raw material to sales, for this sample, has been a sharp by 634 bps y-o-y.
Earnings growth has been propelled by domestic cyclicals such as BFSI companies and automobile manufacturers.
With commodity prices — especially crude oil — on the rise, and demand subdued, analysts have downgraded earnings estimates for several consumer-oriented firms.
