News Analysis

Earnings see a rebound, but demand still weak

Keerthi Sanagasetti BL Research Bureau | Updated on February 13, 2021

Representative image   -  Getty Images/iStockphoto

With commodity prices increasing, the beneficial effect of low input cost is waning

While the economic recovery seems to be taking shape, demand is yet to make a convincing comeback shows an analysis of the December 2020 quarter results of 1,772 companies (excluding banks and financials).

India Inc reported flat revenue growth of 0.2 per cent in this period over the same quarter last year. However, slight savings in input and borrowing costs, and the effect of a low base gave a fillip to the bottomline. The bottomline was also helped by a turnaround in 208 companies out of 478 that reported losses in the three months ended December 2019. For instance, steel manufacturers such as Tata Steel, Jindal Steel and SAIL turned around to profits this quarter on the back of rise in steel prices. Profit after tax for 1772 companies grew 52.4 per cent year-on-year in the December 2020 quarter.


Weak show

The flattish revenue growth is despite the low base — revenues were down 2.1 per cent in December 2019 quarter (over December 2018). While consumer companies and metals saw good demand, topline growth was impacted due to weak show by players in the sectors such as services and infrastructure.

Hindustan Unilever, Marico, Godrej Consumer and Emami reported a 10-20 per cent increase in revenues, for instance. Auto companies also reported double digit growth, following good volumes. Rise in commodity prices favoured metal players. The improvement in the domestic steel consumption gave a leg-up to Tata Steel, for instance, with its focus on the value added products aiding better realisations.

But the same cannot be said of companies in the service and infrastructure space. Aggregate top line growth of airlines and hotels and restaurants industries were down by 51 per cent and 54 per cent, respectively, thanks to the lingering effects of the pandemic. Infrastructure firms are still on their path to recovery. Larsen and Toubro, for instance, reported a 2 per cent decline in the consolidated revenues, during the quarter.

Even as revenue growth remained lacklustre, a 3 per cent dip in material costs and a marginal fall in fuel and power expenses helped operating margins expand. Of 1,772 companies, about 1,412 manufacturing-based companies saw operating margins increase to 20 per cent in the December 2020 quarter from 17 per cent in December 2019. Apart from drop in input costs, lower interest costs and higher other income (6.9 per cent growth) aided profit growth.


The December quarter results show that India Inc may be losing tailwinds from lower input costs. The CRB Commodity Index (by Thomson Reuters) — an indicator of core commodity prices — has inched up by more than 10.5 per cent since December 2019. This indicates that without a significant recovery in demand, India Inc may not find it easy to pass on the rise in input prices. This could act as a headwind to earnings growth in the coming quarter.

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Published on February 13, 2021
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