If the growth in profits of nearly 12% year-on-year reported by the early birds for the September quarter appears impressive, it has more to do with a smaller raw materials bill and a drop in tax outflows rather than robust revenue growth. For a clutch of 65 companies (excluding banks and financials) revenues rose just 3.27% y-o-y, the slowest in many quarters. Benign input costs (down nearly 200 bps), tax rates, and at times, a favourable exchange rate, have helped push up margins and profits. Without the lower tax rate, profits would have risen just 7.4% y-o-y.
While a huge one-time gain and softer commodity prices pushed up profits at TVS Motor, almost a third of Reliance Industries' profits came from other income.
Among the most relevant takeaways so far is that demand remains weak, especially in rural India. At Hindustan Unilever (HUL) volumes grew 5% y-o-y while at TVS Motor they were down 19% y-o-y and at ACC, they were lower 2% y-o-y. Sanjiv Mehta, MD, HUL, said there were no visible signs yet of an improvement in rural demand, adding that rural growth had slowed to 0.5x urban growth - an all-time low. Mehta said the company had taken a blended price cut of 6% across the soaps portfolio.
The weakness in consumer demand can be seen in the slowing retail loan growth of 15% y-o-y at HDFC Bank; there was a moderation in vehicle and personal loans. Retail home loans at LIC Housing Finance grew at a subdued 3.6% y-o-y. Avenue Supermarts turned in a reasonably good performance, though the revenue growth trajectory for the quarter slowed down partly due to the high base and partially due to the slowdown, analysts at Jefferies noted. The retail business at RIL grew smartly with margins expanding.
The Street remains concerned after software major TCS missed estimates, posting a single-digit constant currency revenue growth after several quarters of double-digit growth. While Infosys reported a good revenue growth of 11.4% y-o-y and strong margins, the company only revised the lower end of its FY20 revenue guidance, leaving the top-end unchanged at 10%. The US geography and the BFSI and retail verticals, analysts say, could be pain points for IT firms.
Demand for cement has been weak in the wake of the prolonged monsoon; consequently, ACC's reported revenues up 3% y-o-y, were a shade below Bloomberg consensus estimates. However, the operating profit soared 26% y-o-y on a smaller raw materials bill - costs down 16% y-o-y — favourable inventory adjustments, modest rises in fuel and freight costs, and a fall in other operating costs. PAT was further boosted by a 19% fall in interest costs and a 62% jump in other income.
Analysts at Nomura expect volumes to remain somewhat dull in the December quarter with the rains continuing into October as also the general slowdown. At TVS Motor, revenues were down 13% y-o-y on the back of volume decline of 19% y-o-y.
At Zee Entertainment, the increase in domestic advertising was just about 1.4% y-o-y partly due to the weak advertising spends in a non-festive quarter and also because of the withdrawal from the FTA platform; subdued revenue growth resulted in a fall in Ebitda margins of 155 basis points.