GST impact on companies: Excluding Reliance Industries, Q1 results reflect pain of destocking ahead of rollout; sales grow 6 pct, profits flat

Financial Express By FE Bureau July 24, 2017 6:28 AM

Sales grew just 6.5% and net profits flat for a sample of 81 firms, excluding RIL

The company also offered post-GST prices mid-June and managed to reduce stock at dealers and for the remaining stock dealers were compensated to the tune of Rs 32 crore during Q1.

The April-June earnings season has got off to a subdued start with businesses disrupted due to pre-GST de-stocking. A sample of 81 companies (excluding banks and financials) saw net sales grow at 14.02% compared to the same period last year while net profit grew 7.56%. However, if one were to exclude Reliance Industries (RIL) which reported its April-June numbers on July 20, net sales grew by only 6.5% and net profit growth remained flat. RIL accounts for nearly 40% of the aggregate revenue of the numbers declared so far. Similarly, its 36% growth in other income (including exceptional items) to Rs 3,225 crore is almost half of the combined other income of Rs 7,523.67 crore reported by the rest of the firms. There are nevertheless some encouraging signs. Although Hindustan Unilever (HUL) reported good margins, volumes were flat during the quarter with the management indicating the wholesale pipelines were yet to be fully re-stocked. Analysts said growth was dragged down by sharp de-stocking with virtually no purchases made in June and that this had impacted revenues by as much as 200 basis points.

At Bajaj Corporation, volumes declined nearly 8% y-o-y; gross margins dipped 40 basis points partly due to some increases in costs. Bajaj Auto reported a 6.46% drop in net profit at Rs 923.51 crore from Rs 978.37 crore on a turnover of Rs 6,311,47 crore with operating Ebitda at 18.3% in Q1FY18 compared to 21.2% in Q1FY17. The company also offered post-GST prices mid-June and managed to reduce stock at dealers and for the remaining stock dealers were compensated to the tune of Rs 32 crore during Q1. These put pressure on Bajaj Auto’s motorcycle business in the domestic market and there was a sharp drop in billing in June 2017.

At Ultratech, while volumes in the domestic market were weak declining 1% y-o-y, net sales grew 7% y-o-y on better realisations; this together with the lower costs of raw materials and overheads helped drive up the Ebitda 14% y-o-y. For ACC volumes grew a sharp 10% y-o-y. Costs of some inputs are rising though prices of a few raw materials remain soft; at ACC, for instance, both freight and fuel charges increased during the quarter. For the industry the earning season saw a mixed bag with Infosys reporting a good set of numbers but TCS coming out with weak numbers. In case of Infosys, revenues and operating margins of 24.1% came in ahead of expectations and the dollar revenue guidance was upped.

However, TCS reported a weak 1QFY18 with modest 0.4% miss in revenues and 100 bps miss in Ebit margin. Revenue growth stood at 2% in constant currency and modest 6.3% on Y-o-Y comparison. On sequential comparison and based on reclassified numbers, BFSI grew 2.3% and retail at 2%, while most other verticals grew in a range of 3.7-7.9% in constant currency. TCS stated that volume growth was 3.5% qoq during the period implying adverse pricing mix of 1.5%, which the company viewed as largely quarterly volatility. Ebit margin declined sharp 230 bps qoq and 170 bps yoy to a multi-year low of 23.4%. EPS declined 9.4% qoq and 5.2% yoy and was 3.3% lower than estimate largely due to margin miss. Ashok Leyland, which reported its numbers on July 21missed estimates on the net profit and Ebitda front due to low sales in the medium and heavy commercial vehicle segment. The company’s net profit declined 61.7% YoY at Rs 111.23 crore while operating profit fell 36.5% to Rs 306 crore. Sales during the quarter declined 17% in the MHCV segment.

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