January-march corporate earnings record worst slump in recent times

▪ Records 52% plunge in cumulative earnings ▪ However, banks, food staples and retail sectors emerge largely unscathed ▪ April-june earnings expected to be worse due to lockdowns

The long overdue earnings report card of listed corporates for the January-march quarter is finally here, with only 266 companies filing interim results so far, reporting a 51.9 percent slump in cumulative earnings from a year earlier but the banks, food staples and retail sectors held out as they served the essential functions of the economy, even amid the coronavirus-induced lockdowns. According to First Capital Research (FCR), the listed entities reported a total of Rs.33.6 billion in earnings for the quarter ended in March, recording the worst slump in quarterly results in recent times.

However, if the March earnings report card is considered bad, the April-june is expected to be worse, as nearly a half of the three months was under lockdowns, which disrupted business operations.

Investors and analysts nevertheless are buoyant and bet on a JulySeptember as a turnaround quarter, as the economy returned to its prepandemic levels.

In t he March quarter, sectors including diversified financials, capital goods, food, beverage and tobacco, telecommunication and consumer services reported sluggish performance.

“Lacklustre performance in diversified financials, capital goods and food, beverage and tobacco sectors was mainly owing to subdued economic growth, which was heightened by the pandemic COVID-19 striking t he island,” FCR said.

The telecommunications sector, despite the slump in earnings in the March quarter, is largely considered as an early winner of the pandemic, as the virus and the resulting social distancing measures forced people to get on with work, education and entertainment via online.

The diversified financial sector, which includes finance and leasing companies, succumbed to the “high impairments because of the slowdown in the economy caused a reduction in disposable income of customers and business volumes”, FCR noted.

Since March, their fortunes have further turned dour while their big brothers in the banking sector have largely rebounded with less bruises.

“The banking sector witnessed a profit growth of 32 percent YOY to record Rs.14.6 billion, primarily driven by COMB (+20 percent YOY), HNB (+57 percent YOY) and SAMP (+27 percent YOY). COMB, HNB and SAMP profits were boosted, due to financial investment gains (forex and mark to market gains) coupled with the removal of NBT and Debt Repayment Levy, which improved the bottom line,” the research house said. Meanwhile, the other sector, which survived the pandemic largely unscathed, was retail, as consumer spending received a tailwind from the tax cuts, amid lower interest rates and the positive consumer sentiments stemming from the policy and political stability after the November presidential election.

As a result, “CARG recorded an impressive growth of 134 percent YOY, driven by the growth in FMCG and retail space, benefitting the food, staples and retailing sector to record a growth of 96 percent YOY,” FCR said.