Q4 profits grows sequentially, much better than expected

The good news is that almost 90% of NSE-500 companies have already declared their results and that gives a good base of mid-caps and large caps to take a measured view on the quarterly numbers. YOY results may look misleading due to the base effect and hence we focus more on a sequential view.

Jun 18, 2021 06:06 IST India Infoline News Service

Result Analysis
Nearly 80 days after the end of Mar-21 quarter, just 1600 companies out of 4,300 listed on the BSE have declared their results. SEBI gave a special extension this time due to COVID 2.0 extending the last date for quarterly and annual results to 30-Jun.We could effectively see a rush of 2,500 companies pushing results announcements in next 2 weeks.

Major results out of the way and trend is friendly

The good news is that almost 90% of NSE-500 companies have already declared their results and that gives a good base of mid-caps and large caps to take a measured view on the quarterly numbers. YOY results may look misleading due to the base effect and hence we focus more on a sequential view. Let us start with a macro picture of Q4 results for Mar-21.

On a yoy basis, the net profits (PAT) more than tripled. While this can attributed to the base effect, it must be kept in mind that this PAT growth was despite the massive spurt in tax liability in Mar-21 quarter as the dividends of the tax formula shift announced in September 2019, is done and dusted. On a yoy basis, the net sales of non-financial companies was up 16.8% and other income up 29.4%. This is commendable as the full base effect was only felt in the Jun-20 quarter and not in the Mar-20 quarter. More importantly, gross profits were up 88% yoy, indicating that economies of scale and cost control measures had worked.

But, the real growth story is sequential?

When Indian companies announced flattering results for the Sep-20 and Dec-20 quarters, the consensus was that Dec-20 quarter represented a peak. While Mar-21 was expected to show yoy growth, the sequential qoq growth was expected to be negative or, at best, flat. However, actual sequential numbers were much better than expected.

If you look at top line sales, they were up 6.7%, led by growth in oil, capital goods, cement and metals. However, the important data point is the gross profit growing by 18.5% qoq indicating that the dividends of cost controls were still growing. There has been a sustained fall in interest costs, which is down 4.2% on yoy basis and 1.7% on qoq basis. Abundant liquidity infused by the RBI led to rapid transmission of rate cuts to borrowers. The net impact was that net profits are up 25.6% on a sequential basis, which is appreciable after 2 quarters of frenetic growth.

Finally, a combined look at the margins story. Gross margins are up at 13.4%; from 8.3% in Mar-20 quarter and 12.1% in the Dec-20 quarter. That was operating profit accretive. The net margins are up at 10.9%; from 3.8% in Mar-20 quarter and 9.3% in the Dec-20 quarter.

Some interesting sectoral stories emerged in Q4 FY21

Here are some key sectoral trends in the Q4 results and we shall restrict only to sectors with a significant weight and relevance to the overall market. We focus only on QOQ growth.

a) It was a good year for automobiles sector with 9.8% growth in sales and 37.4% growth in profits on qoq basis. This was led by a lot of revenge buying and FOMO consumption.

b) Good monsoons, higher MSP and hopes of a third normal monsoon in 2021, boosted agri stocks. Agri sector reported 11.6% growth in top line and 104.8% profit growth.

c) Aviation stocks saw revenues up by 26.7% on sequential basis, but losses widened as the gap between the RASK and the CASK worsened after the onset of COVID 2.0.

d) Cement and construction material companies saw top line and bottom line up around 17% as higher volumes and better price realizations boosted the numbers.

e) FMCG had a subdued quarter. Sequentially, revenues were up 2.8% but profits were flat and operating profits were actually lower due to input cost pressures.

f) Metals and mining stocks were the stars with sequential growth of 21.1% in sales and 12.7% in net profits. They are in the midst of sustained growth due to the global revival.

g) Another sector that outperformed was oil & gas with sales growth of 7.2% and net profit growth of 71.9%. Refiners benefited from better GRMs and inventory translation gains.

h) IT stocks grew top line by 2.69% with robust guidance but profits were down 16.7% as cost pressures and lower embedded profit margins began to tell across IT companies.

i) Chemicals saw flat top line growth but net profits were down nearly 9% sequentially as supply chain constraints and input costs began to make a serious dent on profits.

j) Bank revenues were lower by 3.2% sequentially, largely due to pressure on corporate loan books. A spike in provisioning also meant that net profits of banks were down 5.7%.

Of course, there have been some select pockets of concerns but overall, most of the GDP-enhancing sectors like metals, refining, cement and capital goods have flattered on the positive side.

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