Early birds report 71% jump in profit
Good June quarter showing on last year’s low base
The companies in cyclical sectors are likely to drive corporate earnings in the June 2021 quarter, too. The combined net profit of 230 early bird companies in Q1FY22 was up 70.6 per cent year-on-year (YOY), because of a favourable base and strong showing by firms in cyclical sectors, such as banking, metals & mining, cement, and oil & gas.
The combined net sales were up 35.2 per cent YOY to ~5.25 trillion in the June 2021 quarter, though the figure was down 5 per cent over Q4FY21. These companies’ net sales were down 21.7 per cent and their net profit had shrunk 19.8 per cent a year ago.
Companies across sectors, but for IT exporters, reported a sequential decline in net sales. Most companies also reported a sequential and YOY decline in their operating margin — except for banks, metals and cement companies — because of higher commodity and energy prices.
The early birds’ combined net profit at ~73,000 crore in Q1FY22 was up 2.2 per cent QOQ but earnings were 3.3 per cent lower than the record high clocked in Q3FY21.
For example, cyclical sector companies reported their highest-ever combined quarterly profit of ~40,681 crore in the June quarter, up nearly 40 per cent from ~29,108 crore a year ago. The earnings of cyclicals were up 6.6 per cent over the March quarter and 54 per cent higher YOY.
Net sales of cyclicals were up 28.6 per cent YOY to ~3.17 trillion but down 6.5 per cent from the record high of ~3.39 trillion in the Mar 2021 quarter. Among non-cyclicals, earnings growth was led by software exporters, such as Infosys and Wipro; consumer goods companies, such as Hindustan Unilever, ITC, Bajaj Auto, Asian Paints, and Havells India, reported a sequential decline in revenues and profits.
Non-cyclical companies’ combined net profit in Q1FY22 was up 136.3 per cent YOY to ~32,353 crore — the lowest since the September 2020 quarter. These companies’ combined net sales were up 30.2 per cent YOY to ~2.08 trillion. For comparison, their net sales and net profit were down 12.4 per cent and 49.3 per cent YOY, respectively, in the June 2020 quarter.
These firms clearly showed the impact of rising inflation and high commodity and energy prices. For example, Hindustan Unilever's operating margin in Q1FY22 was the thinnest in nine quarters, while that of Bajaj Auto was the lowest in nearly five years, except for the June 2020 quarter when the company didn’t sell many vehicles due to the lockdown.
In contrast, metal firms, such as JSW Steel, reported their best-ever margins in the first quarter; it was the same for cement makers like Ultratech Cement, ACC, and Ambuja Cements. These companies in the cyclical sector gained from both higher prices for their products and a sharp decline in interest cost.