Rising raw materials cost emerged as a pain for some of the companies, given their reluctance to pass on the rising input costs to consumers amid the onset of the second wave of Covid, which has already triggered downgrading of earnings estimates for FY22 and FY23.
Aggregate profit for 25 companies (including financials), which account for about 70 per cent of Nifty50 weightage, jumped 77 per cent YoY to Rs 74,166 crore from Rs 41,957 crore year-on-year, data compiled from AceEquity database showed.
Sales of these largecaps rose 13.64 per cent YoY to Rs 52,1409 crore from Rs 4,58,811 crore a year ago. Total expenditure as a percentage of net sales jumped to 79 per cent compared with 74 per cent in the year-ago quarter.
Growth Trend
In the larger NSE200 universe, 18 out of 67 companies managed to beat estimates, 26 delivered neutral results while 23 missed estimates.
“Exports growth turned out to be positive and ranged from stable growth for the software pack (2-3 per cent sequential growth in constant currency terms) to strong revival for the auto firm as global demand improved. Extending the trend from Q4 results, merchandise exports for April rose sharply to $30 billion,”
said in a note.
The brokerage said demand (private final consumption expenditure) remained subdued as discretionary consumption on personal vehicles, leisure, retail, travel & entertainment continued to be impacted severely by the second wave of the pandemic although demand for staples remained robust.
Cement and metal volumes looked strong at 15-20 per cent YoY, indicating that construction and manufacturing activities remained robust, ICICI Securities said and suggested that no major sign of stress has been seen in large banks and NBFCs so far, as reflected in the record low spread of corporate bonds over government bond yield.
Rising Input Cost
Among the largecap companies, Maruti Suzuki reported a 10 per cent year-on-year drop in profit for the March quarter at Rs 1,166 crore, even as total revenue from operations jumped 32 per cent YoY to Rs 24,023 crore. The numbers were partly hit by higher cost of the raw materials consumed.
Bajaj Auto, which reported 1.7 per cent rise in March quarter profit, also said it witnessed a sharp increase in input costs in the March quarter, which affected margins. The company said input costs have continued to rise in the ongoing June quarter too.
March was also a difficult quarter for the FMCG players.
“The fourth quarter was difficult for most FMCG companies because of a rise in input costs and it would remain show for some more time to come till the harvesting season arrives post monsoon. It had more to do with demand side issues. FMCG players might be able to pass on some costs to the consumer, though they may not be able to pass on the full increase, in which case one might have to absorb some bit of it. Margin pressure would continue in Q1,” said Mayank Shah of Parle Products.
The HUL management, as Phillip Capital reported, expects gross margin headwinds to sustain in the short term due to higher raw material price inflation and an inferior product mix. The FMCG major is following the approach of calibrated price hikes for soaps and tea portfolio in order to mitigate cost pressure.
For Tata Consumer also, tea prices went up. The company witnessed some impact of Covid 2.0 on rural demand. In the case of Marico, costs of key inputs like copra, rice-bran and HDPE (high density poly ethylene) climbed over 25 per cent YoY, but the management expects some pressures, especially in copra, remain transient and would course-correct through FY22.
What do analysts say
Motilal Oswal said the resurgence of the second Covid wave has muddied sentiment and impaired visibility of FY22 earnings. While the market is currently looking beyond the short-term impact. If the pandemic doesn’t subside soon, it opens up downside risks.
“Q4FY21 earnings are progressing largely in line with our expectations, but earnings downgrades are now rising, given the widespread restrictions in various states, which is hurting mobility and economic recovery. The interplay of resurgence in Covid-19 cases and the pace of vaccination would decide the trajectory of economic recovery going forward,” it said.
ICICI Securities said expanding earnings base and consolidating index are improving the ‘time value of money’, as valuations scale down from record levels.
“The trajectory of Covid cases will be a key trigger for the market now, as India has underperformed global equities since March,” it said.
Sandip Sabharwal of asksandipsabharwal.com said the results have been decent so far, but one cannot extrapolate them into the future.
“Still most people are looking at a GDP growth of 11 per cent for this year. The way things are looking, we might actually end up maybe at 7 or 8 per cent. As those downgrades take place, we will have to factor in the impact of slowdown on earnings. We could see decent cuts in earnings estimates for most companies,” he said.
Nifty now trades at a 12-month forward P/E of 20.1 times, which is 7 per cent above its historical average of 18.8 times. At 2.9 times, Nifty’50 P/B is also well above its historical average of 2.6 times. The market capitalization-to-GDP ratio is at a new year-end high of 106 per cent.
