In the NSE-500, the benchmark of 500 most important stocks in India, over 490 companies have already announced numbers for Q3. The data points are sufficient to take a ringside view of how the quarter fared. We look at the quarter overall and the sectors that flattered as well as the sectors that faltered.
How the Dec-20 quarter fared overall?
Let us first look at the macro picture on a yoy basis. The good news is that sales revenues of these 3650 companies in Q3 is up 2.5%. This is a shift from the Sep-20 quarter when overall sales were down. As a result, the total sales are up 16.6% on a sequential basis.
The second big trend is that gross profits are up 8.4% on a yoy basis. This comes from dividends arising from lower cost of materials, better working capital management, less funds locked up in inventories and a fall in debtor days overall.
At a non-operational level, the interest cost is down -2.1% yoy on the back of lower interest rates in the economy as a reaction to the pandemic and surplus liquidity. The tax costs are sharply up 25% on a yoy basis, but that is more because the previous year had a lower tax burden with most companies opting for the concessional 22% tax formula.
Despite higher taxes, net profits for the sample of companies was up 66% on a yoy basis and a marginal 0.5% on a sequential basis. That led to net margins improving from 5.2% in Dec-19 to 8.5% in Dec-20 quarter.
Sectors that flattered the street in Dec-20 quarter
Automobiles and ancillaries were the big story of the Dec-20 quarter. The segment saw top line growth of 23% yoy and net profit growth of 84% in the Dec-20 quarter. Most of the gains came from a sharp pick up in demand from the domestic and export markets.
The economies of scale enabled better absorption of fixed costs. Metals was another big gainer with 17.4% growth in sales and 160% growth in net profits. For the metals sector, it was a combination of volume pick-up and robust LME prices that boosted sales and profits.
Banks saw moderate gains with 7.5% growth in top line and 23% growth in the bottom line. This was an outcome of sharp growth in retail banking and treasury income during the quarter while lower provisions for loan losses resulted in profit growth.
In contrast, non-banking financials witnessed an 8% fall in top line and 43% fall in bottom line. Revenues were impacted by lower interest income and unfavourable fair value changes. The bottom line got impacted by interest costs remaining sticky as well as larger provisions for loan losses as well as for asset impairment.
FMCG and Healthcare were the two other sectors that showed good traction. FMCG showed 5.5% growth in top line and 8.3% in bottom line and this growth came largely on the back of rural growth. Pharma and healthcare registered a growth of 14.4% on revenues and 43.3% in profits as the post-pandemic world created a robust demand pipeline.
Among other significant gainers in the Dec-20 quarter, construction materials, capital goods and chemicals saw robust growth in sales revenues, gross profits, and net profits. This was on account of a turnaround in industrial demand. The bottom lines of these sectors also gained from lower input costs and lower interest pay out.
But quite a few sectors also faltered in Q3
The big heavyweight sector to falter on quarterly growth was the oil & gas sector with -6.8% yoy contraction in revenues and -10.3% in profits. The top line was not a surprise due to weak crude prices compared to last year and unremunerative gas prices fixed by the government. The profits of oil companies got negatively impacted by a fall in gross refining margins or GRMs and weak petchem margins.
There were standard suspects where the lag effect of the pandemic was still an overhang. Sectors like aviation, hospitality, retail, logistics and media were under pressure as volumes are yet to get to pre-COVID levels and the lag effect is prominent. Telecom had some respite on top line due to better ARPUs, but they will take a long time to emerge from losses.
In a nutshell, if you discount the standards pandemic suspects, there is good news on most sectors that could act as lead indicators of an economic recovery. Of course, with interest rates stabilizing and oil prices closer to $65/bbl, there is hope that the next few quarters may flatter in a much bigger way. That would be Mozart for the optimists!