Covid-positive, India Inc posts anaemic numbers

The Covid-19 pandemic has taken a toll on corporate earnings in the March 2020 quarter, though the lockdown was enforced for just a couple of weeks during this period. Based on the results declared so far, the top-line of listed companies (excluding banks and finance companies) was down by 3.9 per cent in the Q4, compared to the corresponding quarter in the previous year. The reported profits of the companies have witnessed a contraction of more than 31 per cent.

Only 570 listed companies have reported their Q4 numbers, as on June 12. The delayed reporting is due to the leeway given by SEBI to listed companies, struggling with the pandemic impact, to report their numbers by June 30.

Lockdown impacts all

With travel and tourism restricted from March, hospitality and travel industry took a sharp knock. Companies such as Mahindra Holidays and Interglobe Aviation reported more than a 90 per cent decline in profits.

Discretionary consumption began taking a backseat from March, with automobile companies reporting drop in sales. Maruti Suzuki, for instance, posted a 15 per cent drop in standalone revenues in this period compared to the previous year. Due to higher raw material costs and sales promotion expenses, the company’s profits declined 28 per cent. Non-discretionary consumption, however, continued in the lockdown period too, helping FMCG companies navigate this patch much better. While HUL recorded a 10 per cent decline in top-line, it contained the drop in profits to 3.4 per cent by controlling ad spends.

Banks that have declared results so far did not fully register the pandemic impact in the March quarter. Profits of HDFC Bank and ICICI Bank were up 17.7 per cent and 7 per cent, respectively, while Axis Bank reported a loss of ₹1,388 crore during the quarter. SBI managed a multifold jump in profits largely due to one-time proceeds from stake sale in SBI Cards and Payments. Most banks have, however, made Covid-related provisioning, anticipating stress due to loan defaults in the coming quarters.

Profit growth of IT companies was largely flat, despite a moderate 8 per cent growth in their aggregate top-line due to higher employee expenses. Companies such as Infosys and Wipro were unable to give annual or quarterly guidance for the coming quarters due to Covid-related uncertainties.

Operating margins drop

Of the 570 companies, about 320 manufacturing-based companies saw a drop in operating margins to 13 per cent in Q4 from 15 per cent in December 2019. This was due to lower realisation and spike in employee expenses; up 6 per cent compared to last year. However, the drop in operating margins was limited to 2 percentage points, thanks to a 6 per cent dip in raw material costs. The fall in commodity prices in the first quarter would have provided a salve to listed companies. Also, with the recent crash in crude oil prices, power and fuel costs also declined by 12 per cent. This provided a fillip to companies that rely heavily on crude as input. Ultratech Cement, for instance, saw only a 2 per cent drop in operating profits, despite a 13 per cent fall in revenues, thanks to lower power and fuel costs.

A 4 per cent spike in the finance costs further dampened the profits. However, a lower tax outgo, down 8.4 per cent in the March quarter, due to the recent cut in corporate taxes, helped limit the blow.

It, however, needs to be noted that the trend in earnings can alter going forward, as many companies are yet to report their numbers for the March 2020 quarter.

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