Q1 was tough but cost cuts saved the day for India Inc

Over 2200 companies have announced their quarterly results and this includes all the Nifty companies and virtually the full Nifty 500 list.

Sep 07, 2020 12:09 IST India Infoline News Service

How the performance looks overall?

On a YOY basis, the consolidated sales revenues for the Jun-20 quarter of these companies were down by (-26.8%). This was largely driven by the COVID lockdown which impacted manufacturing and services. The Jun-20 quarter was bad in the sense that even on a QOQ basis; the total revenues were down by 24% due to the impact of COVID-19.

The tax cost was 38% lower in the Jun-20 quarter on a YOY basis driven by the tax cuts announced by the Finance Minister in September 2019. Corporate tax rates were slashed from 30% to 22% and most companies opted for the new tax regime. However, despite lower taxes, the interest costs were up by 7% due to higher cost of funds. This resulted in net profit for the quarter falling 57.8% on a YOY basis. Profits were also hit as most banks and financials made huge provisions for the post EMI moratorium period.

Sectors that did better in the Jun-20 quarter

It may sound paradoxical; but even in the midst of the pandemic there were sectors that showed improvement in the top line and bottom line. Here is a sneak peek.
  • The agri sector reported 5.2% YOY growth in sales and was one of the few sectors unaffected by the lockdown. Demand for tractors, agrochemicals and hybrid seeds remained robust in the midst of good rains and a record Kharif output this year.
  • Banks were a surprise package in the quarter. While private banks sustained their top line growth, the real surprise package was the PSU banks that saw a profit bounce on the back of lower provisioning in the quarter. This applied to financials too.
  • Healthcare was another sector that remained robust in the midst of the pandemic. On the one hand the demand for healthcare services was largely stable and even gained during the pandemic. Most of the pharma companies saw gains in sales and profits due to the surge in global Remdesivir and Favipiravir orders. Healthcare had a great Jun-20 quarter with top-line growth of 7.1% and profit growth of 45.7% YOY.
  • Another big star performer was the insurance sector with five out of the six listed players announcing results. The growth in revenues was substantial in this segment as the quarter saw a rush for insurance cover in the light of the COVID crisis. Total revenues for the quarter were up by 81.5% while net profits were up by 8.8% on a YOY basis.
Sectors that took the steepest cuts of COVID-19

There are no prizes were guessing because these were the standard suspects where the direct impact of the pandemic was phenomenal. Here is a quick preview.
  • Automobiles took a 68% hit on the top line even as the sector dipped deep into losses with most of the big names announcing losses on tepid sales and not-so-flexible cost structures.
  • Aviation was another sector that saw revenues down 91% as most flights stayed grounded through the 3 month period. The aviation sector also dipped deep into losses as all airline companies came under margin pressure due to idle capacity.
  • Chemicals took a hit on the demand and the supply front. The weak demand was evident in the sales falling 23.4% in the Jun-20 quarter. Profits fell by 32.3% due to supply chain disruptions.
  • Consumer durables did not have a great time either with most showrooms shut and online sales hit by uncertain income. Revenues for the quarter were down 54% while the profits dipped 91% due to high inventory and other fixed commitments.
  • FMCG came under pressure in the Jun-20 quarter after a long gap. It saw 14% fall in net sales and 12% fall in profits. The demand was robust but labour and social distancing issues forced them to operate at lower capacity.
  • Hotels took a deep cut with tourism and travel coming to a virtual standstill. Hospitality reported 85% fall in revenues while the bottom line dipped into losses due to pricing pressures.
  • Metal companies had little to cheer. Logistics constraints and weak metal prices took its toll. Overall sales fell by 36% and profits fell 62% in the quarter as weak infrastructure investments hit metals demand in a big way.
Then there were sectors like oil and telecom which also took a big hit. Oil sector profits were hit by inventory losses while telcos made higher AGR provisions. Jun-20 quarter was partially redeemed by expenditure cuts and lower taxes, but the pressure of the lockdown was writ all over the numbers.

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