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  • How India Inc. fared in Q1 FY19

    Publish Date: 17th August, 2018

    India Inc. got off to a flying start in the June quarter.

    Revenues shot up by 22% while the net incomes of almost every major sector witnessed double-digit growth. Of course, the low base of Q1 FY18, owing to de-stocking ahead of goods and services tax (GST) rollout, aided corporate India. Nevertheless, it comfortably beat street expectations to put up the stellar show.

    Net profits of the Kotak Institutional Equities (KIE) universe of corporate India increased 12.5% y-o-y. Its net income increased to 14.4%, exceeding our expectations.

    Here is an overview of how corporate India performed in Q1 FY19:

    • Banks reported a healthy credit off-take. But there was a marked decline in slippages despite higher provisioning.
    • Consumer goods showed steady volume growth.
    • Passenger vehicles continued on their growth path.
    • Cement companies struggled to maintain profitability but witnessed moderate volume growth.
    • For industrial companies, order booking was decent in a weak seasonal quarter. This suggests moderate underlying demand.

    Banks: Bad loans no more a worry

    Bad loans had haunted the banking segment for a long time. But they showed signs of better health in the first quarter. Slippages reduced to a great extent and there was overall growth in credit off-take. Provisioning during the period remained high, which should comfort investors.

    Corporate banks, which deal with corporate customers, reported a steep decline in slippages in Q1 FY19 compared to the corresponding period of the previous fiscal. Banks were also buoyed by the resolution of two stressed accounts under the National Company Law Tribunal during the period. This led to interest recognition for banks and helped better the net interest margins (NIMs).
    Gross non-performing assets (NPAs) were down for most institutions. That includes Axis Bank, Bank of Baroda, ICICI Bank, and State Bank of India. Provisioning for bad loans remained quite high. As a result, SBI and ICICI Bank reported losses during the quarter.

    Meanwhile, credit off-take remained strong, especially for private banks. Public sector banks too fared well on this front. Strong demand for retail and trade financing ensured that the sector performed well.

    Related: Banks: Deposit ownership

    Consumer goods: Bolstered by weak base quarter

    The consumer goods segment fared quite well in the June quarter. This is thanks to the low base in Q1 FY18 for de-stocking before the GST rollout. However, the volume growth of most consumer companies, especially those dealing in staples, was largely unimpressive from a two-year compound annual growth rate (CAGR) perspective. Most of them delivered low single-digit CAGR in volumes.

    Related: Consumer Products: Month in review—June 2018: Aggression in detergents; stable otherwise

    Automobiles: Strong underlying demand propels growth

    The commercial vehicles segment saw strong volume growth in Q1 FY19. Ashok Leyland and Tata Motors—the two major players in the segment—registered 50% and 85% y-o-y volume growth and 15% two-year volume CAGR each. This augurs well for the sector as it is an indication of strong underlying demand.

    The passenger vehicles segment continued on its strong trajectory of volume-driven growth. Maruti Suzuki reported a 26% volume growth y-o-y and a two-year volume CAGR of 20%. This is indicative of demand buoyancy in the segment.

    Two-wheeler volumes delivered strong double-digit y-o-y growth in Q1 FY19. But the two-year volume CAGR is modest for Honda Motorcycles at 0% and lacklustre for Bajaj Auto at 4%. The figures may suggest the peaking effect of a low base in Q1 FY18.

    Related: Bajaj Auto Q1 earnings: A blip or should you be concerned?

    Cements: Moderate to strong growth

    Most cement companies reported moderate-to-strong growth during the June quarter. Volumes showed decent increase. UltraTech Cement, for instance, reported 32% y-o-y growth in volumes and a two-year CAGR of 17%. That includes UltraTech’s acquisition of Jaiprakash Associate’s capacities. Our research team attributes the strong performance of the sector to the following factors:

    • Moderate recovery in housing demand,
    • Strong government support to affordable housing, and
    • Pickup in infrastructure spending, especially roads, which took care of the underlying volume growth.

    What was disappointing about the sector was the ability of the companies to maintain profitability. In fact, we found them to be quite erratic. ACC and Ambuja Cements reported significant earnings before interest, taxes, depreciation and amortisation (EBITDA) improvements. However, Shree Cement and UltraTech Cement disappointed on the same metric.

    Pharma: Modest recovery in revenues

    Most of the pharma companies covered in our report showed modest recovery in revenues except for Lupin Pharmaceuticals on a y-o-y basis. But their revenues remained flattish on a two-year CAGR.

    Six of the pharmaceutical companies on our list that have a big US presence saw 11% growth in revenues on a y-o-y basis.

    • The US sales of Dr Reddy’s Laboratories were up 7% y-o-y (2% two-year CAGR).
    • Cipla’s sales rose 4% y-o-y (1% two-year CAGR).
    • Sun Pharma reported 13% y-o-y growth in its US sales. But it is still down 21% on a two-year CAGR basis.

    However, Lupin reported a meltdown in its US business, reporting a 23% y-o-y decline in sales.

    Industrials: Healthy order book revives optimism

    Domestic revenues of the industrial companies that we covered increased 11% y-o-y in Q1 FY19. On the other hand, order inflows for the sector increased 24% y-o-y. The star performers were BHEL and L&T.

    • In a healthy sign of domestic investment, L&T reported a 27% growth and 19.3% CAGR on a two-year basis in terms of order inflows in Q1 FY19. Heavy engineering, hydrocarbon, and infrastructure led the order book for L&T.
    • For Maharatna company BHEL, flue gas desulphurisation (FGD) systems, power, and railways led the order book.


    The June quarter earnings of India Inc. provide reassurance that the underlying factors are still strong in our economy. All the key sectors fared well, barring telecom and infrastructure. A 12.5% surge in overall net profits is certainly comforting.

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