For India Inc, FY21 is all about cost rationalisation1 min read . Updated: 06 Jul 2020, 09:51 AM IST
- Companies opted for various cost-cutting measures, including reduction in salaries, postponing capital expenditure plans and slashing advertisement expenses
- Management commentaries, across the board, do not provide clarity on demand recovery
MUMBAI: As highly anticipated, India Inc didn’t report any fireworks in the March quarter earnings. Some bright spots in terms of improvement in operating margins or profits were largely buoyed by cost reduction. Struggling with liquidity issues, companies opted for various cost-cutting measures. These included reduction in salaries, postponing capital expenditure plans and slashing advertisement expenses.
“Among companies reporting results, at least 35% have cut salaries/reduced variable pay, c.10% have reduced manpower & c.10% have lowered cost through contract labour reductions. Almost 1/3rd of companies indicated deferral/postponement of capex," analysts at JM Financial Institutional Securities Ltd said in a report on 2 July. The broking house, having coverage of 167 listed companies, said, at an overall level, nearly 60% of companies articulated cost reduction.
Tata Motors Ltd, Ultratech Cements Ltd, BPCL Ltd, JSW Steel Ltd and Hindalco Industries Ltd were among those who either trimmed capex or put expansion on hold. In the consumer discretionary space, sanitary ware companies Kajaria Ceramics Ltd, Somany Ceramics and wood panel company Century Plyboards Ltd opted for cutting employee costs.
Management commentaries, across the board, do not provide clarity on demand recovery. So, companies are likely to remain focused on cost and cash preservation in fiscal 2021, to keep losses in check.
As a result, brokerages have started trimming their earnings per share (EPS) estimates for FY21. Motilal Oswal Securities Ltd has cut its FY21 and FY22E Nifty EPS estimates by 9% and 6% to ₹454 and ₹637 respectively.
Sharing bleak views, analysts at Dolat Capital Market Pvt said, “For all our companies, we build a tepid FY21 with a V-like recovery in FY22." The report published on 30 June added, “So, effectively, companies are going back to their FY19/20 level of earnings back in FY22, which is like going two years back. Even these FY22 nos. are based on certain assumptions and our excel sheets don’t capture two key variables- the known unknown and the unknown unknown."