Early trends show covid 2.0 disrupted biz in Jun quarter

A Mint analysis of 166 companies, which have declared June quarter earnings, showed that after adjusting for one-time profit or loss, their sales and profit were lower than in the March quarter; however, the figures were far higher than the depressed base of a year ago when a stringent lockdown had crimped sales. The analysis excludes banking, financial services and insurance (BFSI), and oil and gas companies.

Net sales of these companies fell 1.6% sequentially in the June quarter compared to an increase of 6.51% in the March quarter. Adjusted net profit was up 2.63% sequentially, against a fall of 0.8% in the March quarter.

However, compared to the figures of last year, both net sales and adjusted net profit rose 42% and 114%, respectively, at least a 25-quarter high. This compares to a growth of 22% and 39% of adjusted net profit in the March quarter.

Mitul Shah, head of research at Reliance Securities, said overall earnings across sectors reported robust year-on-year growth on the shallow base of last year as the nationwide lockdown had impacted economic activity last year. “However, earnings declined on a quarter-on-quarter basis due to the second covid wave. Disruption of the second wave is clearly visible in Q1FY22. IT sector delivered a strong performance. A positive surprise in terms of the healthy bottom line on year-on-year as well as a quarter-on-quarter basis, coupled with inching-up guidance for FY22, augurs well for the sector,” Shah said.

Shah said consumer demand was hit because of the second wave, though it is recovering gradually. “This time, the impact of covid disruption is slightly deeper in rural India; hence, recovery may not be as sharp as last year. It would be gradual in the coming months. Ramp-up in vaccination and control on covid caseload would be deciding factors for consumer demand,” he said.

Rising commodity costs, higher inflation, and a potential rise in virus cases remain key concerns for companies.

Even though Hindustan Unilever Ltd (HUL) reported an increase in volume growth, the FMCG leader’s management was cautious about the outlook. HUL’s domestic sales revenue grew 12%, backed by a 9% growth in volume. HUL executives said near-term demand outlook remains challenging due to restricted consumer mobility; yet, it expects rural demand to be stronger.

Companies continued to feel the pinch of rising commodity prices. In the first quarter, HUL’s gross margin slipped 139 basis points to 50.4% due to costlier key inputs, led by tea, palm oil and crude oil. “HUL alluded to taking 3% price increases to mitigate cost pressure—we believe this has not covered the full impact of inflation. This appears to be a conscious strategy to gain volume market share from unorganized players and yet remain competitive,” a 22 July Centrum Broking note said.

For firms under review, total expenditure jumped 27% from a year ago but was sequentially lower. Prices of basic raw materials such as oil and metals rose significantly. Brent crude rose 18%, while aluminium, copper, zinc and lead were up 5-16%. Bajaj Auto’s performance was hit by lower revenue from operations, costlier raw materials and higher staff costs, while exports were consistent. “It is consistently exporting over 200,000 units per month despite weakness in (some) pockets…. It expects exports to stabilize and receive a boost once covid situation improves,” a 22 July Motilal Oswal Financial Services note said.