Firms in select industries navigated pandemic better than the rest
Most banks and financial services firms increased digital adoption during the lockdown, benefiting IT cos
While no industries were immune to the havoc wrought by the coronavirus pandemic, it is now clear that larger companies from select sectors navigated the choppy waters better than the rest.
Though the aggregate earnings of companies in the three months ended 30 June were disappointing as the strict lockdown took a toll, analysts pointed out a few bright spots such as information technology, cement, pharma and staples.
Leading companies in these sectors beat analysts’ estimates, albeit ones that were slashed, showing resilience amid the pandemic.
The relatively better performance of these companies was driven by sharp cost-cutting initiatives and improved pricing power.
The lifting of the lockdown also led to a demand rebound in sectors such as staples, paints, select automobiles, cement, insurance, metals and energy, analysts said.
A Mint analysis of 717 listed manufacturing companies showed that both net sales and adjusted net profit dropped to at least 22-quarter low in the April-June period. Net sales in the fiscal-first quarter declined 33.3% from a year earlier. That compares with a growth of 3.54% in the year-ago quarter. Adjusted net profit plunged 87% in the first quarter from a fall of 6.4% in the year-ago period.
Similarly, for 253 companies in the services sector, net sales dropped to at least 22-quarter low, declining 8.42% in the June quarter from a 13.7% growth in the year earlier. Adjusted net profit fell 49% from a 0.33% growth in the first quarter of the previous fiscal. The analysis excludes banks, financial services and oil and gas companies.
Varun Lohchab, head of institutional research at HDFC Securities, said information technology, cement, pharma and staples beat margin estimates due to sharp cost-cutting initiatives and a drop in travel expenses. “There was continued market share gains for the larger companies compared to smaller players and those from the unorganized sector during Q1. Earning misses were more prevalent in autos, consumer discretionary, energy, insurance, and asset management companies while hits were mainly in IT, pharma, cement, chemicals and banks," Lohchab said.
Most banks and financial services (BFS) firms increased digital adoption during the lockdown, benefitting Indian IT companies. Analysts said that financial services companies, aiming for higher cost efficiencies, are likely to increase outsourcing and offshoring to low-cost locations.
“Barring IT, the performance of the services sector remained soft. Travel and hospitality vertical remained under immense pressure under lockdown. Multiplex businesses also took a knock. For media companies drop in advertising revenue hit profitability," said Arjun Yash Mahajan, head of institutional business at Reliance Securities.
Ravindra Sonavane contributed to the story.
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