Listed companies have shrugged off the effect of demonetisation in the third quarter ended December 2016.

The 1,700-odd companies considered for this analysis recorded a healthy year-on-year net sales growth of 9.1 per cent in the October-December 2016 period.

This is an improvement over the 5 per cent y-o-y growth in top-line seen in the three months ended September 2016.

At 29.8 per cent, profit in the December quarter grew at a much faster clip than the 13.6 per cent recorded in the September quarter.

Most companies were able to ward off the impact of rising input prices, through cost-control efforts.

Banking and finance companies have been excluded for this analysis. Consolidated numbers have been taken wherever applicable.

Led by industrials

The note ban impact was apparent in some consumer-oriented sectors — such as automobiles, FMCGs, media and entertainment, paints and retail — which recorded low growth of less than 1 per cent to 4 per cent in the December quarter.

With rural India badly affected by the cash crunch, many companies reported low sales. For instance, Hero MotoCorp, which derives bulk the of its revenues from entry-level bikes sold in the rural areas, witnessed a sharp 12 per cent drop in sales.

Hindustan Unilever, which derives 45-50 per cent of its revenues from rural areas, put up a lacklustre show. Companies in the fertilisers space saw a 15 per cent fall in sales.

The disappointing performance on this front was made up by commodity producers. Strengthening Chinese demand and US President Donald Trump’s promise to up infrastructure spends in the US saw prices of many metals such as steel, zinc, lead, copper move up briskly.

Crude oil too reversed from its lows of about $30 a barrel seen earlier in 2016.

Hence, improved realisations aided sectors such as steel, non-ferrous metals, and mining and minerals.

Hindustan Zinc, for instance, recorded a 46 per cent y-o-y rise in net sales in this quarter compared with a 11 per cent y-o-y drop in the previous quarter. Steel producers such as SAIL, JSW Steel, Kalyani Steels and refineries also reported good numbers.

Certain urban-centric discretionary segments such as cars and consumer durables did well too.

Cushion for profit growth

Apart from the 17 per cent growth in ‘other income’ — that is, income from non-core operations such as treasury and/or sale of assets — strong double-digit growth in profit posted by commodities and refineries/oil explorers also helped boost overall profit growth.

Tata Steel, for example, turned around, from a loss of ₹2,750 crore in the December 2015 quarter to a ₹232-crore profit now. BHEL, too, followed suit, thanks to good growth in the power segment. What also helped was the fact that many companies were able to rein in costs, despite the uptrend in commodity prices. Companies with strong demand such as Maruti Suzuki passed on this rise, through price increases.

Others such as Colgate-Palmolive, Marico, P&G, and Emami cut advertising spends. Raw material costs as a percentage of sales for the 1,700-odd companies stayed at around 55 per cent in both the current quarter and in the year-ago period.

Improved operating leverage from better top-line growth and cost control helped operating profit grow by 23.6 per cent and operating margins improve by 190 basis points year-on-year, to 15.5 per cent.

However, considering that many corporates negotiate material supplies in advance, the full effect of the rise in commodity prices may show up with a lag in the fourth quarter.

With the note ban impact expected to wane by the end of this fiscal, listed companies catering to the domestic economy may see greater traction in sales.

On the export front, sectors such as software and pharma continued to log 8-10 per cent growth both in sales and profits in the third quarter.

But there pressures may mount going forward, given the increasing call for protectionism in key markets such as the US.

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