Q4 corporate earnings disappoint amid lockdown, point to worse quarters

Combined revenues of 410 firms declined 6%, while profit before tax fell 35%

The lockdown imposed due to the Covid-19 pandemic has hurt corporate earnings for the January-March 2020 quarter (Q4FY20). The combined revenues of 410 companies, which have declared their results, were down 6 per cent on a year-on-year (YoY) basis during Q4, while their profit before tax (PBT) was down 35 per cent YoY. 

India Inc lost seven days during the quarter as the lockdown came into force on March 25. The cut in corporation tax cushioned the blow a bit and net profit after tax was down 32.3 per cent YoY during Q4. This is the worst financial performance by corporate India in at least past 12 quarters. For example, the combined revenues of these companies were up 31.5 per cent YoY in Q4 of FY19, while their PBT was up 54 per cent.

The numbers are, however, likely to change as we are in the middle of the earnings season and less than a fifth of all the listed companies and only 60 per cent of the index companies have declared their Q4 results so far, say experts. Our sample includes 30 companies that are part of Nifty 50 index. 

The combined revenues of these 30 index companies were down 1.4 per cent YoY while PBT was down 35 per cent YoY during Q4. However, thanks to gains from the tax cut, net profit was down 25 per cent during Q4. For the entire Nifty 50 sample, analysts expect a 19 per cent decline in the combined net profit during Q4.

 

Analysts expect a much sharper fall in corporate revenues and profits during the April-June quarter (Q1FY21) as the lockdown was extended. “The Q4 earnings don’t fully reflect the impact of the lockdown. Given the leading indicators available till now, the contraction in economic activity in India, as reflected in Purchasing Managers’ Index (PMI) for manufacturing and service sectors, has been steeper than most other economies. It is likely that contraction in real GDP and corporate revenues and profits in Q1FY21 will be the steepest ever,” said Dhananjay Sinha, director research, Systematix Group. 

"The Q4 earnings season has brought to the fore the challenging terrain ahead for corporate earnings with multiple headwinds and moving parts. The adverse economic impact of Covid-19 is expected to wipe out FY21 earnings growth," wrote Deven Mistry of Motilal Oswal Financial Services. 

The numbers don’t look better if lenders and insurance companies are excluded from the sample. The combined PBT of 353 companies, excluding financial firms, was down 41 per cent YoY during Q4, while revenues were down 3.4 per cent YoY. Both the numbers are worst in at least past 12 quarters.

According to analysts, India Inc also faces challenge from the widening mismatch between revenue growth in key expenses with the exception of raw materials and energy. For example, companies’ combined salary and wage bill was up 9.7 per cent YoY during Q4 while interest expenses were up 6.7 per cent during the quarter. This, analysts say, could keep downward pressure on margins during most of FY21.

 

In all, 83 companies, around a fifth of the sample, reported a loss at the net level during the quarter, while another 211 companies — two out of every three company — reported a YoY decline in PBT, indicating the depth of slowdown facing India Inc.