What to look for in the June quarter results across sectors

The reporting season for June quarter results has started against the backdrop of a slowing economy, high inflation, a weakening rupee and rising interest rates. How are companies tackling these headwinds? How vulnerable are they to the changed environment? Some of these questions will be answered when the quarterly results start trickling in. We have given below some of the key trends and data that investors should look out for in the corporate results:

Hard-hit: A file photo of a TVS Motor Co. plant at Hosur, south of Bangalore. For the automobile industry, revenue growth will be offset by declining margins as input costs are rising.

The sector is perhaps facing the maximum headwinds—higher steel and other input costs on the one hand and the pressure on demand on the other, thanks to increasing interest rates and higher fuel costs.

Still, most companies have done well to report decent volume growth. But the worry is that revenue growth will be offset by declining margins. The key ratios to look at are the operating margin and operating profit per vehicle.

In some cases, investors are keen to see how low margins could go. Bajaj Auto Ltd, which reported numbers last week, said operating margin fell 190 basis points and operating profit per vehicle fell 13% from a year ago. Though those were significant declines, markets were fearing worse and so the stock rose 10% after the announcement.

Capital goods

The positive spin about engineering companies and contractors has been that they are sitting on very large order backlogs and hence have strong earnings visibility, a great comfort during tough times. But, how soon will that order book be converted into revenue? A key concern about engineering companies has been their ability to execute projects, which has slowed revenue growth. A shortage of skilled manpower and components and the inability of vendors to ramp up capacities have contributed to the problem. Revenue growth will therefore have to be watched carefully to see how companies are tackling this issue.