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India Inc Q1 earnings: No sign of green shoots in April-June quarter

FE Bureau
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After a dismal 2018-19, during which profits grew a shade under 4%, corporate India is bracing for more pain, as high frequency indicators suggest demand is weaker than ever. Expectations have never been more tempered and the Street will be satisfied if there aren't too many disappointments.

Analysts at Kotak Instituional Equities (KIE) expect net profits for the universe of companies that it tracks to grow by just 1.3% year-on-year; excluding banks, which should report strong numbers due to a helpful base effect, the profits are tipped to fall 6.7% y-o-y. That sums up the mood on the Street.

It's not surprising that expectations are low. Jefferies' Activity Index growth remained in the negative zone for the second consecutive month in May. Growth in the three-month moving average (3mma) also turned negative for the first time since April 2014. "The momentum indicator remained negative for the fifth month in a row, the longest since 2010," analysts at the brokerage wrote.

Every possible set of data - auto sales, freight, cement, credit, ports,foreign trade and capex - is weak, if not altogether anaemic. CMIE reported that new project announcements crashed to a 15-year low in June to around `43,400 crore.

With demand dipping, companies have found it difficult to push through volumes and pass on costs. At TVS Motors volumes rose just 2.1% year-on-year in Q4FY19 while HUL reported its lowest volume growth in six quarters at 7% y-o-y. Britannia posted a volume growth of just 7% y-o-y while volumes at CEAT declined by around 1% y-o-y due to a drop in both OEM and replacement segments.

Consequently, revenue growth was muted. While Maruti Suzuki's revenues grew at just 1.7 % y-o-y, at HeroMotocorp they fell close to 8% y-o-y. At Shoppers Stop, same-store sales grew just 3.7% y-o-y despite a very weak base of a negative 4.1%. At Bharti Airtel, revenues rose by just 4.8% y-o-y.

In an environment of keen competition, companies have been unable to hold on to their operating margins. The Hindustan Unilever management actually mentioned the 'R' word in its post-results commentary.

Analysts at Nomura had written, after the results, the numbers pointed to an all-round slowdown in consumption. "The impact of the slowdown on earnings is strong, particularly on discretionary consumption, with a significant contraction in Ebitda margins," they noted, adding that in the near term, the growth outlook, particularly for discretionary consumption, remains challenging.

Little has changed in three months and, in fact, sectors such as automobiles have only fared worse with volumes falling despite discounts and inventories piling up. The stocks have been reflecting the very poor corporate performance for more than two years now with less than a dozen top stocks faring fell.