The September quarter earnings season has so far thrown up many more disappointments than surprises, making for a sedate start. The poor headline numbers — a 9% year-on-year fall in net profits for a sample of 226 companies — are the result of flat profits reported by Reliance Industries, a loss from JSW Steel, a sharp fall in profits at ACC of 120% y-o-y and at Ultratech of 45% y-o-y. Some smaller companies, too, have reported weak numbers or even posted losses; at Havells, profits were down 38% y-o-y while PVR posted both an operational and net loss.
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In fact, the revenue growth for the sample (which excludes BFSI) of 25.6% y-o-y is somewhat disappointing given a favourable base and the inflationary environment. At Tata Consumer Products, standalone revenues were up just a shade over 7%.
The good news is that businesses that were badly hit by the pandemic are bouncing back nicely. Shoppers Stop staged a good recovery with revenues up 60% y-o-y, while revenues at Avenue Supermarts were up 36% y-o-y driven by a revival in same-store-sales and new stores. ITC’s consumer goods business fared well with revenues rising 21% y-o-y.
While the IT pack has done fairly well, producers of commodities and cement have struggled with rising costs. Raw material costs per tonne at JSW Steel, for instance, jumped about 70% y-o-y.
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Margin pressures are in evidence everywhere. For a sample of 266 companies (excluding banks and financials) the OPM contracted 422 bps y-o-y to 16.5% leaving operating profit flat. Consolidated Ebitda margins at RIL were down nearly 200 bps y-o-y. Even at much smaller businesses — Rallis for instance — margins were flat despite a 31% jump in revenues due to competitive intensity and high input costs. Gross margins at Hindustan Unilever contracted by about 580 bps y-o-y during the quarter. At Shree Cement, margins dropped to a seven-year low.
There hasn’t been much of a pick-up in volumes at consumer-facing companies. At Tata Consumer, the volume growth has been muted in some segments and contracted in others. Volumes at Bajaj Auto were virtually flat for the quarter. The underlying volumes growth at HUL was 4% y-o-y.
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Even in the industrial products space, volume growth has been subdued; at ACC, volumes went up just 4% y-o-y. Analysts believe there has been a deceleration in volumes at Asian Paints estimating the increase for the quarter at 10% y-o-y.
Some firms have managed to contain the pressure on margins by raising prices; Asian Paints, for instance has taken a cumulative price hike of around 25% in the past six quarters to try and combat inflation in raw materials of about 34%. Analysts estimate that Nestle’s 18.2% y-o-y rise in revenues in Q2FY23 is the result of price increases of about 10-11% and volume growth of 7-8%.
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Bajaj Auto’s net realisations were up 17.5% y-o-y and the average selling price in the domestic market was up by 10.6% y-o-y.
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At the same time, competitive intensity and subdued consumer demand, in some segments of industry, have hurt companies like Havells whose Ebitda margins crashed 600 bps y-o-y. Moreover, the disruption caused by the heavy monsoon has hit construction businesses; IRB Infrastructure’s revenues fell 8% y-o-y, driving down the Ebitda.
While Infosys, TCS and HCLTech all reported reasonably good numbers for the September quarter, with HCL Tech beating the street handsomely, Wipro’s September quarter earnings trailed the consensus and were disappointing. Managements say the demand environment is fairly robust and the slowdown has not materially impacted IT spending just yet, nor is there much of a delay in deal conversions. They believe companies will continue to spend on IT to become more efficient in these difficult times. FE
