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  • 5 things to expect from October-December Quarter Results

    It’s likely to be a crucial earnings season. As companies report their financial performance for the quarter October-December 2017, everyone is likely to have the same question in their minds—what was the impact of Demonetization on business numbers.

    Credit ratings agency, CRISIL, came up with a report on what to expect from the results for the December quarter. Here are the five key takeaways from the report that could be of value to you:

  • By and large, demonetisation to affect most of the companies:

    Here’s the answer to your biggest question: Yes, demonetization is going to affect almost all companies, and quite a bit, that too. This is reflected in three aspects: People barely spent any money on discretionary items—not necessary for every-day living. This affected auto sales. Secondly, demand for loans from non-food sectors grew 5.3%, the lowest in a decade. Also, the Nikkei India Composite PMI Output Index fell below 50 in November and December. This suggests a fall in orders.

  • Expect de-growth in certain sectors:

    It’s one thing to witness slower growth; it’s another to witness contraction (negative growth). “Sectors such as FMCG, housing, retail, telecom services and textiles are likely to de-grow in Q3FY17,” the CRISIL report said. This is mainly because of cautious spending by consumers during the quarter, the credit ratings agency said. In fact, both telecom and FMCG are expected to see a 11% fall in revenues in the quarter compared to the previous year.

  • Export-dependent companies a mixed bag:

    So demonetization was a home-grown factor. Logically, it shouldn’t affect export-oriented companies like IT, right? True. But there were many global factors that affected certain companies too. This is why steel companies are expected to report a 24.6% growth in revenues on a year-on-year basis while IT companies are likely to see a slower growth of 7% in the quarter. Events like the Britain’s exit from the Eurozone may affect IT sector revenues and order bookings.

  • Key drivers of growth:

    CRISIL expects the revenues of key sectors to grow 4.1% in the quarter on a year-on-year basis. This is much slower than the 5.3% growth in the previous quarter that ended September 2016. This 4.1% growth is because of a few sectors—Steel products, Pharmaceuticals, IT and Power. Some other sectors that could play a key role are Sugar, Airlines, Aluminium, Chemicals and Capital Goods.

  • The good news in the Margins:

    If the above four points worried you, here’s a good news—revenues and profits may fall, but margins are likely to have been steady in the October-December quarter. This means the underlying profitability of India’s companies—measured by profit margin—has not been affected. In fact, many sectors are expected to record an improvement in margins. This includes sectors like power, steel products and pharmaceuticals. Only the automobile, telecom, IT and FMCG sectors are expected to see a small contraction in margins. That said, remember, most of these sectors already had higher-than-industry-average margins.

    • Demonetisation may deal a bigger earnings blow to banks than to consumer firms Read more

    • Two-thirds of small businesses hit by demonetization, finds survey Read more

  • 19.7%

    The operating profit margin of the key sectors is likely to be 19.7% in the December quarter, as per the CRISIL report. This means companies are likely to pocket 19.7% of the total revenues from key operations as profit. However, this is lower than the 21.3% reported in the previous quarter.