India Inc turns in dismal results, pain all around – The Financial Express
Published: May 27, 2019 2:37:27 AM
At HeroMotoCorp, volumes fell 11% y-o-y in a subdued industry demand environment and partly since inventories needed to be cleared post the dull festive season.
Corporate profits for Q4FY19 have been quite poor, reflecting several pain points. Almost all companies have disappointed the street with just a couple of surprises. The aggregate numbers have been boosted by the relatively good numbers from a few heavyweights but for the rest of India Inc, it’s a quarter everyone would like to forget.
Analysts at Nomura wrote that the results point to an all-round slowdown in consumption. “The impact of the slowdown on earnings is strong, particularly on discretionary consumption, with a significant contraction in Ebitda margins,” they noted, adding that in the near term, the growth outlook, particularly for discretionary consumption, remains challenging. Analysts at Kotak Institutional Equities (KIE) said they had cut earnings estimates for2019-20 across sectors, other than banks, to reflect lower volume and profitability assumptions.
For a sample of 1,012 companies (excluding banks and financials), net profits fell 13% year-on-year in the three months to March. To be sure, the decline is due to the sharp fall in other incomes — down 36% year-on-year. Excluding other income, the rise in net profits is 7.3% y-o-y. With the ratio of raw materials to sales coming down by 8 basis points y-o-y, operating profit margins (OPM) held on, rising 38 basis points y-o-y. Else, the top line for the sample which grew a shade under 11% y-o-y was a modest increase. However, excluding TCS and Reliance Industries,the fall in profits for the sample is a sharp 18% y-o-y while the revenue growth is below 10% y-o-y.
Demand is clearly very weak and with purchasing power crimped, the competitive intensity has gone up. Few companies have been able to hold on to their operating margins because price increases have been difficult and even volume growth has been sluggish. At Ashok Leyland, Ebitda margins contracted 170 bps y-o-y as gross margins were weak. Analysts expect margins to remain under pressure for another two years as the scale of operations falls and marketing and technology-related spends go up. In the absence of a good top line, profitability has been under pressure. Tata Motors, the standalone business, reported an Ebitda that was well below expectations as gross margins were lower than expected and discounting in PV and CV businesses remained elevated.
Ebitda margins at HUL expanded 82 bps y-o-y but this was the lowest y-o-y margin expansion reported in the past 10 quarters. Also, this was led by flat staff costs and a lowly 3% increase in ad spends.
Ebitda margins at Bharti fell 310 basis points y-o-y while at TVS Motors, Ebitda margins fell 30 bps y-o-y. At Bajaj Auto, too, margins declined, led by price cuts in the home market while at Asian Paints margins contracted 230 bps y-o-y. At Godrej Consumer, the management resorted to some aggressive cost rationalisation, staff costs and ad spends, and other expenses were down 2%, 13%, and 1% in absolute terms, respectively, helping margins stay more or less flat y-o-y. But despite that the Ebitda fell. At Exide, margins rose 70 basis points y-o-y but that was partly, thanks to a fall in employee expenses, down 4% y-o-y.
For most businesses, either volumes or realisations have been subdued. Domestic revenues at Nestle grew at 10% y-o-y, but that was a six-quarter low. At TVS Motors volumes rose just 2.1% y-o-y in Q4FY19 while HUL reported its lowest volume growth in six quarters at 7% y-o-y. Britannia posted a volume growth of just 7% y-o-y while volumes at CEAT declined by around 1% y-o-y due to decline in both OEM and replacement segments. ACC’s volumes increased 5% y-o-y in the quarter slower than the industry level growth of around 8-10%, analysts pointed out. At HeroMotoCorp, volumes fell 11% y-o-y in a subdued industry demand environment and partly since inventories needed to be cleared post the dull festive season.
At Ashok Leyland revenues rose 1% y-o-y, while at Maruti Suzuki revenues grew at just 1.7 % y-o-y; at Hero they fell close to 8% y-o-y. At Shoppers Stop same-store sales grew just 3.7% y-o-y despite a very weak base of a negative 4.1%. At Bharti Airtel, revenues rose by just 4.8% y-o-y. Wherever possible, companies managed to grow revenues by earning better realisations. At Shoppers Stop, the average selling price rose 6% y-o-y while the ticket size rose 7% y-o-y. At Tata Steel, stand-alone volumes rose 18% y-o-y but realisations were lower by 8% y-o-y.
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Source: Financial Express