India Inc keeps costs on a tight leash in Q1
nMUMBAI: India Inc. has tightened its grip on costs, resulting in a decline in expenses in the fiscalfirst quarter. Total expenses of companies as a percentage of net sales in the June quarter declined to at least a four-quarter low.
The aggregate expenses of 119 firms that have reported June quarter results so far, excluding banks, financials, oil and gas, as a percentage of net sales have slipped to 78.45% in the three months to June, the lowest since the quarter ended June 2019, according to data provided by
Capitaline. Aggregate expenses, however, slipped 14.3% from a year earlier, according to Capitaline.
“Firms had undertaken massive cost-cutting exercises because of the lockdown,” said Rusmik Oza, executive vicepresident and head of fundamental research at Kotak Securities.
Software services firms have seen travel expenses drop sharply, fewer hirings and cost savings through rate negotiations with vendors. Similarly, fast-moving consumer goods firms have saved on advertising spending and promotions.
“Some of the economy-driven companies have got the benefit of lower input costs on account of
AGGREGATE EXPENSES OF 119 FIRMS THAT HAVE REPORTED Q1 RESULTS HAVE SLIPPED 78.45%
direct and indirect benefits coming from lower crude prices. Companies would continue with cost reduction measures to try and improve margins because of the ongoing uncertainty and lower visibility of demand in the coming months. Some variable costs may also go up as commodity prices have risen but there could be better control on fixed costs in the future,” Oza said.
In the June quarter, Hindustan
Unilever Ltd reported a sharp cut in advertisement spending (down 397 bps year-onyear), aiding the company’s operating margin. The same is the case with Britannia. Its cost optimisation, especially lower spending on advertisements, drove a 634 bps y-o-y expansion in the Ebitda margin to 21%. One basis point is one-hundredth of a percentage point. As cost rationalization remained key, jobs and salary cuts helped somewhat in trimming overall expenses in the June quarter. Still, employee costs as a percentage of net sales of these companies increased to a 20-quarter high at 33.7% in Q1FY21.