Q1 results: Net profit of 113 firms up 10.8%, sales growth at 10-qtr low

Illustration: Ajay mohanty
The earnings season for the April-June 2019 quarter has started on a slow note for Corporate India, with early birds reporting a slowdown — both in top line and bottom line growth.

The combined net profit of 113 companies that have declared their results for the first quarter (Q1) of 2019-20 (FY20) so far was up 10.8 per cent year-on-year (YoY), down from 12.7-per cent YoY growth reported during the fourth quarter of 2018-19 and 13.5 per cent growth a year ago. 

Combined net sales (or net interest income in the case of lenders) were up 12.2 per cent, growing at the slowest pace in the last 10 quarters for this universe.

Profit growth would have been even worse if not for the exceptionally strong growth reported by InterGlobe Aviation, which runs IndiGo airline. InterGlobe’s net profit jumped over 40x YoY, while its net sales were up 45-per cent YoY during the quarter, thanks to market share gains from the closure of its rival Jet Airways. The absence of a major competitor allowed IndiGo to raise its utilisation level and improve realisation, leading to a dramatic rise in its margins. The airline reported an all-time high operating margin (excluding other income) of 26.8 per cent in Q1FY20, against a negative 0.2 per cent a year ago. 

InterGlobe accounted for nearly a third (31 per cent) of the incremental growth in the early bird companies’ net profit during Q1, ahead of much bigger companies such as Reliance Industries (RIL), Tata Consultancy Services (TCS), HDFC Bank, and Infosys. 

Excluding IndiGo, the combined net profit of early bird companies was up 7.5 per cent YoY during Q1, growing at the slowest pace in the last five quarters, while net sales growth at 11.4 per cent was the lowest in 11 quarters.

The numbers suggests that the slowdown is across the board, with most leading companies reporting growth deceleration during the quarter. 

For example, RIL, the country’s largest company in terms of revenue, profit, and market capitalisation, reported a net profit growth of 6.8 per cent YoY during Q1 — the lowest in the last 10 quarters. The company’s interest payment or debt servicing cost has been higher than the operating profit growth for eight consecutive quarters, as its multi-billion dollar investment in mobile telephony business is yet to generate adequate profits.

Software services exporters such as TCS, Infosys, and Wipro also reported a slowdown in earnings and revenue growth, in line with a deceleration in the world economy. The industry’s combined net profit was up 8.3 per cent YoY during the quarter, showing deceleration both on a sequential and YoY basis. The industry’s net sales growth at 10.9 per cent YoY was the lowest in five quarters. 

Information technology players were the single-largest component of the early bird sample, accounting for nearly 40 per cent of the combined earnings and 27 per cent of the combined net sales. 

On the brighter side, retail banks in the private sector outperformed the average company, with the exception of YES Bank. 

For example, HDFC Bank’s net profit was up 21 per cent YoY, in line with its growth in the last two years, while IndusInd Bank reported 38.3 per cent YoY growth earnings during the quarter. Federal Bank and RBL Bank also reported strong double-digit growth in earnings during the quarter.

Analysts attribute this to banks’ ability to take away market share from retail non-bank lenders, most of which are facing difficulty in raising funds from the wholesale market to fund their operations.

“A part of the retail lending market has shifted to banks as non-banking financial companies are not getting funding as in the past. This should continue for at least a few quarters more,” said Dhananjay Sinha, head of strategy and chief economist, IDFC Securities. 

Analysts, however, say it’s too early to judge overall performance of Corporate India based on early bird results, as most large companies in sectors that have been more affected by the slowdown, such as automobiles, consumer durables, capital goods, metals and mining, infrastructure, and telecom, are yet to declare their results for Q1FY20.

In rupee terms, early bird companies represent a third of India Inc, in terms of profit and 15 per cent in terms of revenue, based on listed companies’ average quarterly profits and revenues during FY19. In all, the early bird companies reported net profit of Rs 38,641 crore and Rs 3.01 trillion.

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