Q1 earnings collapse blurs signs of economic revival

MUMBAI: Indian companies’ quarterly earnings and sales hit at least a 22-quarter low in the three months to June, dimming hopes of an immediate recovery with Covid-related disruptions likely to persist in the coming months.

Adjusted net profit slumped 74% from a year ago in the June quarter, while net sales declined 26.5%, according to a analysis of 970 listed firms in the manufacturing and services sectors. This is the worst earnings slump since the quarter ended March 31, 2015. The study excluded oil and gas, and financial services companies because they follow a separate revenue model.

While the June quarter results were not entirely unexpected, analysts warned that supply chain disruptions and the uncertain demand scenario will continue to weigh heavily on companies in the next few quarters at least.

Analysts at Kotak Securities expect an earnings recovery in companies that belong to the NSE’S Nifty50 index in the next fiscal year, rebounding from the low levels of this fiscal.

The brokerage estimates FY21 profits of Nifty50 members to decline 3.2% in the current fiscal, and then rebound 38% in the following year.

“We would clarify that FY21 estimates are not very relevant given the impact of Covid,” the analysts said.

The overall picture, however, looks slightly better if Bharti Airtel Ltd, Vodafone Idea Ltd, Tata Steel Ltd and Tata Motors Ltd, which reported heavy losses, are excluded from the analysis. Barring the four, adjusted net profit fell 41% in the June quarter from a year earlier, while net sales fell 26%.

“Supply chains are operating based on patchy demand data, which in turn is affected by localised lockdowns—this would likely keep margins subdued for the coming two quarters,” said S Hariharan, head - sales trading, Emkay Global Financial Services.

Manufacturing faced the brunt of the coronavirus-related disruptions.

Within services, hotel, aviation and tourism firms struggled the most.

A few sectors such as packaged consumer goods, healthcare and technology showed resilience.

“Healthcare and technology earnings stood out both in absolute and relative terms. Both saw meaningful earnings upgrades. Management commentaries thus far suggest firms are implementing cost rationalisation measures to protect margins and the bottom line,” said Motilal Oswal Financial Services.

Earnings support for stocks is crucial because the run-up in markets over the past few months post the March lows has been fuelled by liquidity rather than conviction about an earnings revival. The Nifty index has rallied nearly 20% in April-june while gaining over 45% since March mostly rising on foreign liquidity.

“We find the risk-reward unattractive with valuations at 21 times one-year forward Nifty earnings per share,” Motilal Oswal Financial Services said in a DATE note.

NEWDELHI:THE

Covid-19 pandemic has given a shot in the arm to startups offering cybersecurity products as businesses seek to thwart remote work threats, particularly with companies allowing their employees to work from home.

Startups Lucideus, Wijungle, Uniken, Kratikal and others are creating products for businesses and governments both in India and globally in a boost to the industry.

Palo Alto-based Lucideus, incubated at IIT Bombay in 2012, enables enterprises to measure and mitigate their cyber risks in real-time. “The June quarter has been one of the best quarters for our company. We have won multiple Fortune 50 logos, which are now using our platform. However, while order and revenue bookings are at an all-time high, cash collection has been a challenge,” said Saket Modi, co-founder and CEO, Lucideus.

Lucideus’s top clients include HDFC Bank, ICICI Bank, Tata Sky, Pizza Hut and Whatsapp.

The Indian cybersecurity services industry is expected to grow to $7.6 billion in 2022 and register an average annual growth rate of

Adjusted net profit slumped 74% YOY in the quarter, net sales declined 26.5%

21% by 2025 to reach $13.6 billion, according to a recent Nasscomdata Security Council of India report. The sector has also attracted investors as global spending on security is expected to accelerate after the pandemic.

For Wijungle, whose clients include both the government and private companies across hospitality, healthcare, education, financial services, retail, defence and transportation, Covid has been a mixed bag. “Post-covid, the contribution of the private sector in topline has significantly gone down, while government business is consistent…there are verticals which have become almost dormant, like hospitality etc.,” said Karmesh Gupta, CEO and co-founder of Wijungle.

However, cybersecurity startups are also dealing with many challenges. “The biggest challenge has been quantifying risk. No organisation can confidently predict the risk posture of the organisation and hence budget planning/risk analysis is flawed,” said Modi.