The metals sector contributed majorly to the overall improvement in Q4 corporate earnings
Despite the covid-19 crisis dealing a brutal blow, some businesses suffered limited impact as they remained resilient in the three months to March, analysis of corporate earnings showed. Performance of companies in the last quarter of financial year 2021 reveals dramatic improvement in some operations following a long period of earnings recession.
A Mint analysis of 475 listed companies showed that net sales and net profit, after adjusting for a one-time profit or loss, were at over a 25-quarter, or six-year high in Q4FY21. Net sales of the companies grew 25.71% year-on-year in the quarter, compared to a fall of 8.64% in the corresponding quarter of last financial year, and rose 10.95% compared to the previous three months. Adjusted net profit climbed 117.44% year-on-year in the March quarter compared to a fall of 28.33% in Q4FY20, and rose 61.86% from the December quarter of FY21. The analysis excludes banking, financial services and insurance (BFSI), and oil and gas companies, as they follow a different revenue model.
The metals sector, which was the biggest beneficiary of the robust global rally, contributed majorly to the overall improvement in corporate earnings. The low base of the year-ago period, recovery in consumer demand and cost cutting measures by companies led to the strong rebound in earnings.
“There were certain reasons for robust quarterly corporate earnings in Q4FY21. First is a benign base, so operating leverage has kicked in, and second being cost rationalization. Most sectors have seen administrative cost rationalization, which has aided the higher profitability. Higher commodity prices also aided certain industries, such as metals sector, which benefited from higher realization and profitability," Pankaj Pandey, head, research, ICICI Direct, said.
However, steep commodity inflation has shrunk the margins of companies in sectors such as automobiles, consumer durables and fast-moving consumer goods (FMCG), while a few of them offset the impact with price hikes.
The three months ended March saw sharp commodity inflation with steel prices rising over 15%, and key metals, such as copper and aluminium up by 13% and 11%, respectively. Crude prices were up by 23%.
Information Technology (IT) and cement sectors showed firm March quarter earnings, while a few continued to see sluggish business.
According to Aishvarya Dadheech, fund manager, Ambit Asset Management, the adverse impact of lockdowns and restrictions were more visible in the unorganized sector, which is not adequately represented by the Nifty indices. “The formalization of the economy has gained pace in this crisis, and larger companies have got the benefit of increased market share and revenues, which explains the rise in corporate earnings, too. Last but not the least, some sectors have seen the massive brunt like movie theatres, restaurants, retail, hotels and travel, which don’t have adequate representation in leading indices. Also, the adverse impact on manufacturing sector was limited this time around as labour migration and supply chain were relatively lesser impacted compared to the first lockdown," he added.
A full assessment of the March quarter earnings will take some more time as many companies are yet to declare their results. Securities and Exchange Board of India (Sebi) extended the deadline for listed Indian firms to announce their financial results in view of the second wave of covid infections. Companies which were required to announce their quarterly financial results within 45 days from the end of the quarter or by 15 May 2021, are now allowed to file their March quarter results for fiscal 2021 by 30 June. Despite the localized lockdowns and rural India getting deeply impacted by the second wave, analysts largely remain hopeful of earnings momentum to continue.
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