The earnings season has so far been an extremely dull one, with most companies reporting muted top line growth and a fall in net profits. Demand is clearly very weak; companies have been unable to hold on to their operating margins and even pushing through volumes has been difficult.
With purchasing power being crimped, the competitive intensity has gone up. It’s worrying that the Hindustan Unilever management mentioned the R word in its posts results commentary. But the economy is slowing as seen in the factory output for March, which contracted, the first time in 23 months. The best news so far has been the fairly good growth in order inflows at Larsen & Toubro which increased 14 per cent year-on-year in Q4FY19.
But many of the other heavyweights — Bharti Airtel, Infosys, Maruti Suzuki and Hindustan Unilever — posted very ordinary numbers.
Indeed, the aggregate numbers don’t come as a surprise. Net profits for a sample of 334 companies (excluding banks and financials) are down 18 per cent y-o-y on the back of a contraction in operating profit margins of nearly 300 basis points.
Most managements appear to be in despair and hoping that government spends on infrastructure and work programmes will push up incomes.
The growth in the top line — a shade under 12 per cent y-o-y – is half that in the previous three quarters. For most businesses, either volumes or realisations have been subdued. At TVS Motors, volumes rose just 2.1 per cent y-o-y in Q4FY19, while HUL reported its lowest volume growth in six quarters at 7 per cent y-o-y. Britannia posted a volume growth of just 7 per cent y-o-y while volumes at CEAT declined by around 1 per cent y-o-y due to decline in both the OEM and replacement segments.
ACC’s volume growth of 5 per cent y-o-y in the quarter was slower than the industry level growth of around 8-10 per cent, analysts pointed out.
At HeroMotocorp, volumes fell 11 per cent y-o-y in a subdued industry demand environment and partly because of inventories needed to be cleared post the dull festive season. —FE