Earnings season: Revenues robust, margins strong, costs lower

However, rural demand remains reasonably strong; at Maruti Suzuki, for example, rural volumes accounted for 41% of the overall volumes in FY21, an increase of 200-250 bps y-o-y.

With the IT services pack turning in a good set of numbers and a rebound by consumer-oriented companies after the lockdowns of 2020, India Inc has put up a good show in the March quarter.

While there’s no doubt top-line growth has come back strongly, corporate India’s bottom line continues to be driven as much by cost cuts as it has been in the past three quarters. While the management commentary from IT software services players has sounded confident and the guidance for FY22 has been encouraging, players catering for the home market, especially the consumer-facing firms, have been circumspect.

Sanjiv Mehta, MD & CEO, Hindustan Unilever, for instance, said it would be hard to say how the business would fare in the current quarter given the several localised restrictions due to the ferocious second wave. However, rural demand remains reasonably strong; at Maruti Suzuki, for example, rural volumes accounted for 41% of the overall volumes in FY21, an increase of 200-250 bps y-o-y.

Net sales for a sample of 139 companies (excluding banks and financials) were up a strong 16.4% year-on-year. Companies have been able push through volumes and many have been able to take price hikes to pass on higher input costs.

Revenues at Maruti Suzuki increased by 32% y-o-y led by a big jump in volumes and a 4.5% y-o-y increase in ASPs (average selling prices). Discounts have also come down significantly to Rs 16,600 per vehicle in Q4FY21 versus Rs 19,051 in Q4FY20 as demand has picked up. Net sales at Bajaj Auto rose 26% driven up by an 18% y-o-y increase in volumes and an 8% y-o-y improvement in the net ASP. Revenues at TVS Motor jumped 53% y-o-y led by a 47% y-o-y increase in volumes and a 4% y-o-y increase in ASPs due to higher cost related to BS-VI transition and price hikes taken during the quarter.

For the sample the total expenditure went up by only 11% y-o-y, leading to a 400 bps jump in operating profit margins. At Gujarat Ambuja, costs declined to Rs 3,688 a tonne, a drop of 4% y-o-y on the back of lower material costs, higher use of alternate fuels, better efficiencies in energy consumption and logistics and lower clinker factor.

However, at some companies, the profit margins suffered on account of higher raw material prices. Consolidated gross margins at Marico contracted by 520 bps y-o-y while at Hindustan Unilever the margins contracted 117 bps y-o-y. At Maruti Suzuki, the operating profits increase by 29% y-o-y but would have been stronger had it not been for the increased raw material expenses.

TCS reported a spectacular set of numbers for the March quarter and also announced a strong deal pipeline which should enable the company to report a 15% revenue growth in FY22.

The universe of companies being studied is very small at just 139. Moreover, these are some of the best companies and the presence of half a dozen software services companies heavily impact the sample. The 50% y-o-y jump in net profits is somewhat misleading because the numbers are skewed by those of Reliance Industries which more than doubled its reported profits.