India Inc revival remains elusive Front runners in car segment race past 100,000 bookings
However, early bird numbers largely capture the earnings trends in private sector banks, IT exporters and Reliance Industries. These firms, together, accounted for nearly fourfifth of the combined revenue and adjusted net profit of the sample companies during the quarter. Most of the index heavyweights, especially manufacturing companies, are yet to declare their results.
Going by the early bird numbers, top line growth in the June 2016 quarter is unlikely to impress the market. Before the 3.8 per cent top line growth reported in March 2016 quarter, the current sample had seen five straight quarters of revenue decline.
Profit growth surprised on the upside despite the first sequential decline in the sample Ebitda (earnings before interest, depreciation and tax) margins in two years induced by an uptick in raw material cost. The Ebitda margins for the entire sample declined to 35.8 per cent of net sales during the first quarter from 36.1 per cent in the previous quarter. However, it was still higher by nearly 200 basis points on year-on-year basis.
For every ~100 worth of revenue for corporate India, raw materials accounted for ~31.60 during the June quarter, up from ~30.2 in the previous quarter, but still better than ~37.3 during the same quarter last year.
Among individual companies, earnings growth was led by UltraTech Cement, HDFC Bank and Reliance Industries. The mid-cap star performers included Ashok Leyland, Bharat Financial Inclusion (formerly SKS Finance), Motilal Oswal Financial and DB Corp among others.
Private sector banks and nonbanking finance companies continue to lead the growth and earnings chart driven by a decline in interest cost and lending opportunities opened up because of the balance sheet issues in public sector banks. Some of the companies in the sample include HDFC Bank, Axis Bank, IndusInd Bank, Kotak Mahindra Bank, LIC Housing Finance, M&M Finance and Dewan Housing Finance among others.
The combined net interest income of 36 banking and financial companies was up 17.4 per cent YoY during the quarter while their net profit (adjusted for exceptional items) was up 8.5 per cent. Both the numbers, while a tad lower, were at par with the industry growth in the preceding quarter.
The industry’s interest cost was up 9.6 per cent YoY, growing at a slower pace than revenues leading to a further expansion in the net interest margins. This compensated for a spike in other expenses (largely provisions for bad loans) that was up 38 per cent YoY during the quarter up from 24 per cent growth in the previous quarter and 9.5 per cent growth a year ago.
In comparison, technology heavyweights such as TCS, Infosys and Wipro reported a further slide in revenue growth while their core operating margin (excluding other income) declined to a three-year low excluding March 2015 quarter when TCS’ profitability was impacted by one-time special employee bonus.
The industry is facing a double whammy of slower revenue growth and the burden of an increase in employee costs every quarter since March 2015. Every ~100 worth of net sales now costs the industry ~50.5 in salary & wages up from ~48.9 in the previous quarter and ~50.1 a year ago.
Going forward, all eyes will on the quarterly earnings of old economy heavyweights such as Tata Motors, Tata Steel, Hindalco, NTPC, Coal India, Larsen & Toubro, Maruti Suzuki, Hero MotoCorp, Tata Power, GAIL, ONGC, Sun Pharma and Dr Reddy’s Lab among others. The Street will also have its eyes on the results of key public sector banks such as State Bank of India, Punjab National Bank, Bank of Baroda and Bank of India among others.
Analysts say that below par results from these heavyweights could trip the current bullish sentiment on Dalal Street. Better-than-expected numbers could, however, provide additional ammunition to the bulls. Launched during the festive season in October last year, the vehicle has a waiting period of up to eight months.
Maruti’s other new product, Brezza — an SUV, launched in early March this year took a little over four months to clock bookings of 100,000 units.
About 25,000 units of Brezza are estimated to have been delivered. One of Maruti’s more popular models, Swift, took about 18 months to hit sales of 100,000 units. That was more than a decade ago.
Ritz, launched in 2009, also sold 100,000 units in 17 months.
“The ownership cycle of cars is changing rapidly. More and more people now own cars for three to five years and then go for a new one,” said R S Kalsi, executive director (marketing and sales), Maruti Suzuki.
He added: “The average age of buyers is going down. They are open to experimenting and buying new cars. They are guided by trust offered by a manufacturer and novelty in a model.”
French car maker Renault took the entry segment car market in the country by surprise with the launch of the hatchback, Kwid.
Its unique styling helped Renault clock bookings of over 125,000 units till date.
A total of 75,000 units (approximately) have been delivered.
“In case of Renault, Kwid worked because it came as a disruptive product in its segment. Its SUV look made it an instant hit in an otherwise conservative segment,” said an industry analyst.