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Earnings in Q2FY21: Off to a flying start amid lockdown between July and September

Earnings in Q2FY21: Off to a flying start amid lockdown between July and September
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As the Hindustan Unilever management observed post the company's earnings announcement, the worst is behind us. Indeed, earnings season has got off to a good, even a flying start, if one considers that much of the country was under a lockdown between July and September. With revenues subdued, it was lower costs — especially smaller other expenses — that helped companies protect their margins; for an aggregate of 173companies (excluding financials), expenditure fell 1.53% y-o-y pushing up operating margins by a whopping 336 bps y-o-y. A jump in other income boosted net profits by 11% y-o-y.

The IT pack reported spectacular numbers but so have a good many others. In general consumer-facing companies appear to have benefitted from the relatively high purchasing power in Tier 2 and tier 3 towns even as urban demand has stayed muted and consumer continue to downtrade.

Revenues were expectedly subdued for most companies; for the 173 firms, they rose just 2.8% y-o-y. HUL's organic volumes increased by just one per cent year-on-year in the quarter and revenues by just 3% y-o-y. And with most malls closed, Shoppers Stop stand-alone revenues fell 65% y-o-y. Avenue Supermarts reported a 12.3% yoy drop in revenues largely on account of a slow recovery in footfalls and partial store shutdowns. Although net selling prices at Bajaj Auto were up 5% yoy,revenues fell 7% yoy thanks to a 10% yoy drop in volumes.

But Asian Paints stunned the Street with an 11% increase in volumes that drove up revenues 6% y-o-y. Again, Britannia Industries posted a revenue growth of 12.1% y-o-y, on the back of robust volumes increases at 9% y-o-y, albeit on a low base. Nestle too reported a good growth in slaes of 10.2% y-o-ywhile revenues at Crompton Greaves were up a smart 13% y-o-y. Ambuja Cement reported very strong volumes, up 8% y-o-y, resulting in a rise in revenues of 9% y-o-y; ACC 's volumes, however, were up 1% y-o-y leaving revenues flat.

The speed and magnitude of the recovery in IT stumped the Street which has attributed it partly to pent-up demand. Both Infosys and TCS were able to grow revenues and margins smartly and also win deals; Infosys has upped its revenue and margin forecasts for the year.

A bunch of businesses companies, catering for the home market, have also done exceedingly well. Asian Paints came through with flying colours reporting an all-time high stand-alone ebitda margin of 25.4%, up 500 bps y-o-y as costs fell; other expenses, for instance, declined 14% y-o-y. Bajaj Auto, too, reported impressive margins of 17.1%, up 110 bps y-o-y, helped by a sharp cut in ad spends and a richer product mix in the home two-wheeler market. At ACC, costs fell by 4% y-o-y led by savings on power freight costs and other expenses resulting in a rise in ebitda of 20% y-o-y. Cost control and savings on inputs helped Crompton Consumer post a record ebitda margin of 15.5%, up 350 bps y-o-y. A moderation in raw material prices helped Rallis report a 210 bps y-o-y increase in gross margins but at Bajaj Consumer, for instance, gross margins fell 70 bps y-o-y due to inflationary input costs. Gross margins at HUL fell 145 bps y-o-y.

Ultratech's India ebitda soared 40% y-o-y on good volumes and lower costs which fell 7% y-o-y, again due to savings on energy and other expenses. Ambuja Cements reported excellent ebitda margins of 23.8% beating all estimates. Better operating leverage and lower costs helped Tata Steel Bhushan report a good set of numbers; costs were controlled in areas such as procurement, logistics.

sandeep sandilya
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