Key sectoral trends from the Dec-21 quarter results

21 Feb 2022 , 09:03 AM

The results season for the quarter ended Dec-21 is done and dusted. Out of the 4,248 active listed stocks on the exchanges, nearly 3,900 companies have already filed Dec-21 quarter numbers with the stock exchange. If you aggregate the numbers, there are 2 positive and 2 negative themes that emerge from the quarter.

On the negative theme, top-line has taken a hit on rural sales, although urban sales have made up for it. Secondly, operating profits and operating margins of most sectors were hit by higher costs. On the positive theme, companies undertook cost and process efficiencies while lower leverage cut down on interest costs in the quarter. But, first a macro picture1

How does the macro picture for Dec-21 quarter results look?

On a yoy basis, the consolidated net sales of Indian companies were up 25.6%, largely helped by strong urban sales and price hikes by manufacturers across the board. The input cost pressures are evident from the fact that the gross profits have grown at just 17.9% despite higher growth in sales. However, the net profits for India Inc have grown 38.7% yoy even as interest costs have tapered by -1.5% on a yoy basis due to lower leverage levels.

To get a short term momentum picture, we look at sequential numbers. On a sequential basis, the sales growth is just 7% due to the pressure on rural sales in the quarter. Input cost pressures are evident in the quarter with gross profits growing by just about 1.9%. Ironically, a sharp spike in tax costs was responsible for net profits falling sequentially by -2.3%.

How did margins pan out. On a yoy basis, gross margins are down from 13.2% to 12.4% while net margins are higher by 100 bps at 10.5%. However, on a sequential basis, gross margins have fallen from 13% to 12.4% while net margins have fallen sharply from 11.1% to 10.2%.  Let us look at sectors that did well in the Dec-21 quarter and the sectors that lagged.

Sectors that flattered the street in Dec-21 quarter

The good news is that sales growth has been positive across the board for almost all sectors. That can be attributed to the return of normalcy after repeated bouts of COVID related disruptions to business. Let us look at some of the major sectors that have given positive cues for the quarter.

Aviation was the surprise package. Top line revenues grew by 45.1% in the Dec-21 quarter while net profits were up a whopping 452% as the return to normalcy meant better passenger load factors (PLF) and positive spread between RASK and CASK after a long gap. The other sector to flatter was capital goods with sales growth of 22.3% and profit growth of 85.1% yoy. Overflowing order book positions meant a sharp improvement in top line and better absorption of fixed costs.

Oil and gas was one more sector to flatter the street with 44.2% top line growth and 49.5% net profit growth. Higher crude prices meant better price realizations and improved gross refining margins. It clicked both ways. There were two surprise packages. Real estate saw sales grow 10.9% and net profits grow 17.7% as a surge in demand for home sales helped. The other surprise package was textiles that saw sales grow 39.4% yoy but profits grew 245% as a favourable PLI scheme and better price realization helped in a big way.

A final word on the flattering performance by banks. Revenues were up by just about 3.4% overall but net profits were up 63.3% yoy on the back of improved NIMs for private banks and lower provisioning for PSU banks. Last but not the least, telecom sector saw revenues up 5.8% while profits surged 51% yoy on healthy ARPUs across the board.

Sectors that did not measure up in the Dec-21 quarter

Input costs were the big challenge for manufacturing and service companies. One of the big disappointments was automobiles with sales up 2.4% yoy but gross profits down -29.6% and net profits down -1.8%. Pressure of metal inputs and the shortage of microchips made the quarter tough for autos.

Cement was another sector with 5.4% sales growth but -24.7% fall in net profits due a spike in cost of power, fuel and freight. Consumer durables also faced cost pressures to a large extent. One major disappointment was insurance where revenues grew 253% but profits fell -38.9% on lower investment gains and higher provisions for policyholder losses.

Finally, there were sectors where growth in profits were lower than sales growth. In the Chemical industry, sales were up 41.1% yoy but gross profits were up just 20.1% as most input inflation combined with supply chain constraints. FMCG was another basket case where sales grew 46.5% but profits grew 11.5% as higher crude and food prices put pressure on costs and inventory. Lastly, software and IT services segment saw sales growth at a healthy 21.5% but profit growth was just 2.7% due to higher manpower costs and sharply higher levels of attrition. Even outsourcing charges surged for IT players.

To sum it up, the Dec-21 quarter has been tough on volume growth and tough on input costs. Companies have mitigated these challenges through price hikes, supply chain tweaks and cost controls. Q4 could be the real litmus test for India Inc.