Net sales of companies in Q3 decline to over five-year low
MUMBAI: Net sales of Indian companies in the December quarter saw the biggest decline in more than five years as stagnant incomes and farm distress led to a slump in demand for goods, even as political unrest against the new citizenship law disrupted business.
Companies, however, arrested a decline in earnings before tax in the three months ended December 31 as cheaper raw material costs benefited them, according to a Mint analysis.
The analysis of 1,765 companies showed that the December quarter sales growth was the lowest in at least 21 quarters, declining 1.58% from a year earlier, according to data provider Capitaline. It grew 19% in the quarter ended December 31, 2018.
However, profit before tax grew 19.2% in the quarter ended December from a fall of 13.68% in the preceding three months and a 20.7% drop in the quarter ended December 2018.
The analysis used profit before tax to assess the results as corporate tax rate cuts led to several adjustments in the past two quarters’ earnings. The review excluded banks, financial services and energy companies.
Higher other income boosted operating profit, while lower tax resulted in net profit growing much faster than earnings before tax, according to Deepak Jasani, head of retail research at HDFC
Securities Ltd.
“Political and social unrest in some parts of the country also impacted performance of India Inc in Q3 and this may extend to Q4 in a small way,” Jasani said. “The muted growth in PAT (profit after tax) is largely helped by lower tax due to corporate tax cuts announced in September 2019. Some sectors have, however, benefited out of lower commodity prices and/or cost- control measures. Lower raw material costs helped improve operating margins for some companies.”
Higher other income and lower expenditure contributed to growth in profit before tax in the December quarter. Other income, including income from interest, rent and sale of assets, rose 17.1% in the quarter from a 2.5% growth in the preceding three months.
Total expenditure and raw material costs incurred by these companies declined 4.21% and 9.62%, respectively, in the December quarter. In contrast, total expenditure rose 22.7% and raw material cost increased 21.5% in the year earlier. Average prices of raw materials such as crude oil, aluminium, copper and steel fell in the range of 4-15% in the period.
Margins in a few sectors improved because of lower input costs, said Shibani Kurian, head of equity research at Kotak Mahindra Asset Management Co. Ltd.
“Lower raw material cost benefit was especially visible in sectors which have a higher proportion of crude-related costs. For example, in the cement sector, input costs remained benign, which was positive for margins despite muted volume growth.”