Now that most of the first quarter corporate results are out, it’s time to step back and consider whether they’re delivering a message. Do they unequivocally bear out the expectation of a slowdown in earnings growth? Has demand growth, too, seen a deceleration, or have profits been affected mainly due to high input costs?
Illustration: Malay Karmakar / Mint.
The first trend is that sales growth has been robust for most companies — no surprise, in view of double-digit inflation, but it could also signal that demand is still strong. That’s certainly true for fast moving consumer goods — most companies have notched up healthy rates of volume growth. Price hikes also protected these firms from rising input costs, implying that they have pricing power. The telecom companies have strong net subscriber additions and made up in volume what they lost in price, with minutes of usage rising.
While the growth numbers for the individual home loan portfolio in some housing companies don’t indicate a substantial slowdown in housing loans, these companies are merely taking up the space vacated by some banks.
Volume growth and price increases have boosted auto industry top lines, but that has been more than offset by higher raw material and employee costs. Operating margins have been squeezed mercilessly. The flip side of that is the excellent results for some commodity producers.
The evidence on investment demand is mixed — while some companies have a slower order intake, others seem to indicate the opposite. But that, too, is a change from the recent past, when orders across the engineering sector rose by leaps and bounds. Some companies have offset weakness in India by order inflows from the booming economies of West Asia. And in a sign that the capex cycle is maturing, companies that have completed expansion programmes have suddenly seen their interest and depreciation costs rise as commercial production commences and costs cease to be capitalized.
Of course, there’s wide variation across sectors. The cement industry may soon see excess capacity. Banks have been hurt by mark-to-market provisions. For information technology companies, lower hiring and lower utilization rates point to more tough times ahead.
Although many of the bigger companies have not seen a sharp deterioration in the June quarter, several have warned about a tough operating envi- ronment and have tempered expectations. Analysts have responded with a flurry of downward revisions in earnings.
The good news is many companies have started to take steps to boost profitability, such as pruning costs and changing their product mix. That should stand them in good stead in the tough times ahead.
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