Early December quarter earnings indicate that stimulus through rate cuts and lower corporate taxes have not been able to boost business growth.

A combination of structural and cyclical factors continued to affect consumption and investment demand in the three months ending December, according to analysts. The impact of protests against the Citizenship (Amendment) Act also led to disruptions in demand for few companies.

Graphic: Naveen Kumar Saini?Mint
Graphic: Naveen Kumar Saini?Mint

A Mint analysis showed net sales growth of 190 BSE-listed companies that have reported earnings so far slowed to 4.07% year-on-year (y-o-y), at least a 13-quarter low, from 4.81% in the preceding September quarter. This compares with a net sales growth of 19.64% year-on-year in the December quarter 2018, according to data provider Capitaline.

Aggregate net profit growth before tax was flat at 0.04% (y-o-y) in the December quarter, again the lowest in at least 13 quarters, compared to 2.28% in the September quarter and 17.32% in the corresponding quarter of the previous fiscal. As a reduction in corporate tax rate cuts resulted in several adjustments in last quarter’s tax numbers, Mint has used PBT for its assessment.

Corporate tax cuts announced in September have prevented a further slide in earnings estimates but did not aid in the revival of business. Adjusted net profit after one-time profit or loss saw a growth of 5.56% y-o-y in the December quarter, lower than 11.93% in the September quarter and 9.16% in Q3FY19. Net profit margins growth also was lower at 11.43% during the quarter from 12.16% in the preceding quarter as companies cut costs.

The earnings review excludes banks, financial services and oil and gas firms as they follow a different revenue model.

Corporate earnings so far have been largely in line with estimates, said Vinod Karki, vice president, equities, strategy, ICICI Securities. “So far, a few companies in the financial services and consumption space have shown healthy performance in December quarter. However, the overall consumption trend is still muted and upcoming results by large consumer companies will throw more light on the evolving picture."

Analysts estimated weak sales growth in the December quarter, citing muted demand, tight liquidity and political disruption. Crisil Research expected revenue of corporate India, excluding banking, financial services and insurance (BFSI) and oil companies, to have declined 2-3% on-year in the third quarter (Q3) of fiscal 2020, mainly because of muted private consumption and a decline in revenue of industrial- and construction-linked sectors. “The decline in revenue is largely on account of falling revenue of consumer-linked sectors, which are estimated to have contracted 1-2% on-year," it said.

Analysts agreed that December quarter earnings so far have been in line with estimates but said management commentaries have been cautiously optimistic.

“Most earnings reported so far have been as per our expectations, which itself were muted. Subdued festive demand and stress in the economy were visible in performance of companies in Q3. However, companies in sectors such as cement, plastic, speciality chemicals, midcap IT, and pharma have outperformed in the quarter because of a slew of reasons like low base and low raw material costs," said Rusmik Oza, head of fundamental research, Kotak Securities Ltd.

Demand compression is evident in Q3 earnings, but it is not that “all is bad" in the quarter, said Amnish Aggarwal, head of research, Prabhudas Lilladher.


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