Corporate earnings for the March quarter have confirmed fears that the extended lockdown has worsened growth prospects and will prolong a recovery for India Inc.
Several companies did not provide earnings guidance due to continued market uncertainties while management commentaries indicated aggressive cost-cutting measures and delay in capex.
With demand staying weak, net sales and profit, adjusted for one-time profit or loss, slumped to a 20-quarter low for the three months ended 31 March from a year earlier, showed a Mint analysis of 1,536 listed companies. This despite lower raw material costs and lower tax outgo for these companies, which excludes banks, financials and oil and gas.
In the March quarter, net sales declined 8.84% year-on-year (y-o-y) from a 15.31% growth in same period of FY19, according to data provided by Capitaline.
Similarly, adjusted net profit declined 33.58% y-o-y in the March quarter from a marginal growth of 0.34% in the same quarter last year.
“Top-line growth for our coverage universe contracted by 5% y-o-y, with almost 60% of companies posting a top-line contraction. While the two-week lockdown did exaggerate the weakness, one should keep in mind that growth was weak even pre-covid. Even in last quarter we had one of the broadest top-line contractions," said Shiv Sehgal, president and co-head, institutional clients group, Edelweiss Securities Ltd.
According to Sehgal, cement posted a positive surprise with companies reporting multi-year high Ebitda/tonne and showed strong profit growth. This was largely due to lower input prices and strong price discipline of cement companies. Ebitda is earnings before interest, tax, depreciation and amortization. However, despite gains in input prices, manufacturing companies are facing the heat due to low demand.
During the March quarter, raw material costs for these companies under review fell 14.3% compared to an increase of 15.45% in Q4 of the previous fiscal. Crude prices were down 65.55% and the Bloomberg commodity index (which represents over 20 commodities) was down 23.53% in the March quarter of 2020.
“Decline in sales impacted the overall operating leverage of the manufacturing space despite savings in raw material costs. Consequently, there was a dip in operating margins as well as overall profitability," said Pankaj Pandey, head, research, ICICI Direct.
However, Pandey feels that management commentary along with fourth quarter results of FMCG companies constituted a positive surprise as most of them saw robust demand prospects as well as double-digit volume growth for April and May after supply chains were restored in categories like processed food, hygiene products as well as immunity boosters.
Among 1,072 companies in the manufacturing segment, net sales declined to a multi-year low of 13.49% (y-oy) and adjusted net profit plunged to 43.36% in Q4FY20. Net sales of these companies had grown 15.65% while adjusted net profit fell 8.30% in Q4FY19.
In contrast, net sales of 464 services companies grew 4.70% in the March quarter from a growth of 14.34% in Q4FY19. Adjusted net profit of these companies declined 14.48% in Q4FY20 against a growth of 22.94% in Q4FY19.
With the number of covid-19 cases still rising, earnings revival will take longer, said analysts.
“Certainly, the June quarter is expected to be further muted given the large part of it was under lockdown/restricted economic activity scenario. The demand recovery in the broader economy domestically is expected to be gradual or U-shaped in nature versus the earlier anticipation of a V-shaped recovery," said Pandey.
nasrin.s@livemint.com
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