Q1 early-bird results better than expected; IT, financial services do well

The combined PBT of these companies was Rs 49,311 crore during the June 2020 quarter, as against Rs 54,000 crore a year ago and Rs 49,333 crore during the March 2020 quarter
Early bird results for the June 2020 quarter hint at a better-than-expected showing by India Inc. The combined profit before tax (PBT) of the 95 companies that have declared results so far fell 8.6 per cent year on year (YoY), while their net profit and net sales were down 3.4 per cent each during the first quarter.

However, analysts expect the numbers to deteriorate as more companies announce their results. They say the data in the current sample is dominated by companies from the information technology and financial services sectors, which have been least impacted by the lockdown announced by the government to contain the spread of the Covid-19 pandemic. Manufacturing companies, on the other hand, have been hit by lower demand and plant closures. 

The combined PBT of these companies was Rs 49,311 crore during the June 2020 quarter, as against Rs 54,000 crore a year ago and Rs 49,333 crore during the March 2020 quarter. Net sales declined to Rs 2.7 trillion in Q1FY21 from Rs 2.8 trillion a year ago and Rs 3.12 trillion in the fourth quarter of FY20.

There are 12 index companies in the early bird sample, and most of them reported higher-than-expected top line and bottom line during the quarter, which, analysts say, has provided fuel to the current rally on the bourses.

The Nifty50 index is on course to post gains for a sixth consecutive week. 

The combined PBT of these 12 index companies was down 3.4 per cent YoY, while their profit after tax was up 11 per cent during the quarter. These companies’ revenue was up 6 per cent.

This is better than what brokerages expected from the country’s top 50 companies in Q1FY21. For the 50 stocks in the Nifty50 index, brokerages had estimated a 27 per cent YoY decline in combined revenues and net profit during the quarter.

Analysts attribute this to an improvement in margins and tax savings. “While revenues are down for most companies, margins are up across the board due to gains from lower raw material and energy prices, and cut in discretionary expenses like advertising and travel, besides lower taxes,” said G Chokkalingam, founder and MD, Equinomics Research & Advisory Services.

The government had cut corporate income tax in September, resulting in a 310 basis points (bps) YoY decline in the tax rate for companies during the June 2020 quarter. 

Operating margins for 80 companies, which exclude banks, non-bank finance and insurance companies, were up 100 bps YoY and 160 bps sequentially to 24.8 per cent of net sales in Q1FY21. Core operating margins, which exclude other income, were up 120 bps YoY and 130 bps sequentially to 22.4 per cent of the net sales. This is the highest operating margins reported by companies in at least last 16 quarters.

Analysts, however, caution against reading too much in the early bird numbers, as most of the large manufacturing companies are yet to declare results.

The sample is dominated by information technology and financial services players. Companies from these sectors account for 84 per cent of the combined PBT of the early bird sample and 76 per cent of the combined revenues.

The impact of the pandemic was felt in the manufacturing sector, where the combined net sales of 67 early bird companies was down 23 per cent YoY in Q1FY21, while PBT was down 35 per cent. It could have been worse if not for the 27 per cent decline in their raw material cost and 33 per cent cut in discretionary expenses.

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