Note ban punches holes in companies’ Q3 results

NEW DELHI: From soap and shampoo to cement and automobiles, businesses have seen the demonetisation move punching red marks on their balance sheets, even as they continue to put on a brave face on hopes for "long-term gains from this short-term pain".

An analysis of the latest-quarter results of listed firms shows that the government's ambitious exercise of withdrawing old Rs 500/1,000 notes led to adverse impact on businesses across the sectors, though not many have publicly criticised the move and the likes of Rajiv Bajaj are only an exception.

The companies having acknowledged the negative impact of the demonetisation move in their financial statements for the October-december quarter, although mostly by expecting it to be a positive game-changer and a 'new normal' in the very next sentence, include giants from the groups like Ambanis, Tatas, Birlas, Mahindras, ITC, Hindustan Unilever, Dabur and Bajaj.

"Pace of domestic demand growth slowed down due to demonetisation of old currency notes during the quarter. However, demand is expected to revive as the effects of demonetisation are absorbed and the economy readjusts to the new normal," Mukesh Ambani-led Reliance Industries (RIL) said.

Regarding its Reliance Retail unit, RIL said the demonetisation led to cautious buying by customers for a short period, though some segments actually saw faster growth during that time - a trend largely attributed to digital payments.

At petro outlets also, there was a tepid growth in sales on a quarter-on-quarter basis, which the company said, was due to demonetisation since Reliance petro outlets were not allowed to accept demonetised currency unlike PSU outlets.

In an investor presentation, Aditya Birla Group's Ultratech described the note ban as "short-term pain and long-term gain" and listed a number of short-term adverse impact such as "acute liquidity crunch", reduction in purchase volumes as also impact on GDP and currency rates.

However, for long term, it expected a number of benefits such as fall in inflation and interest rates, increase in public spending and strengthening of organised sector.

Ultratech said the segments most impacted immediately included daily wage earners, transporters, households and retail sales, while for cement sector in particular it expected demand to be impacted due to cash squeeze in system.

Tata Group firm Titan Company, in a quarterly update for third fiscal quarter, said all its consumer-facing businesses witnessed a "drastic slowdown for a few days".

On November 8, 2016, post the demonetisation announcement by the Prime Minister, many Tanishq stores experienced a huge rush of buyers and sales were abnormally high. After that, there was a brief period of lull post which Tanishq's average daily sales were close to the average daily sales pre-demonetisation, the company added.

Mahindra and Mahindra said the auto industry was impacted due to demonetisation in the third quarter, with all segments of auto and tractor industry showing substantial drop in demand during November and December 2016, while the impact was more on rural sales than in the urban areas. Bajaj Auto said the demonetisation move had an "adverse impact on the industry and on the performance of the company".

Its Managing Director Rajiv Bajaj, last week, became one of the most vocal industrialists to criticise the move by saying the idea of demonetisation was itself "wrong" and it is incorrect to blame only the execution side of it.

"If the solution or the idea is right, it will go like a hot knife through butter... if the idea is not working, for example demonetisation, don't blame execution. I think your idea itself is wrong," he said.

The two-wheeler sales are yet to recover from the impact of demonetisation and industry data releases over the last two months have been showing a slump. The industry is looking forward to better sales on hopes of good monsoon and an acceleration in rural growth.

ITC Ltd also said that its results were impacted by lower consumer offtake and reduction trade pipelines in the wake of cash crunch during the quarter.

HUL said the market growth was severely impacted during the quarter due to demonetisation, while input costs also continued to remain inflated. Microfinance giant Ujjivan Financial said its collections took a hit post the note-ban, even as it found the customers to have "every intention to repay".

Dabur India said note ban led to "severe liquidity crunch, impacting FMCG in third quarter", while the growth for personal care items like shampoo, hair oil and toothpaste decelerated in December to almost half of November levels.