Encouraging signals

Q3FY24 results show private capex and rural demand improving

The Q3FY24 (October-December 2023) results of 3,233 listed companies suggest consumption is still below par but there are a few signs of recovery and a return of corporate investment. Growth in net sales is low — only 7 per cent — compared to the same period of FY23, and is barely ahead of inflation. Profit after tax (PAT) and operating profits, or earnings before interest, taxes, depreciation and amortisation (Ebitda), have risen by 24.5 per cent and 26 per cent, respectively. Operating-profit margins have expanded. There is also a sharp rise in other income (up 25 per cent), which may or may not be sustainable.
 

There’s also a visible impact of monetary tightening, with interest costs up 33 per cent year-on-year (Y-o-Y), and 5 per cent quarter-on-quarter (Q-o-Q). Banks have seen credit expansion — up 30 per cent Y-o-Y and 4.5 per cent Q-o-Q. They have also registered 38 per cent growth in fee-based income. The cost of finance has increased 45 per cent Y-o-Y (up 6 per cent Q-o-Q) and reported profits are up 17 per cent. The non-banking financial sector has been hurt by the Reserve Bank of India’s decision to increase risk-weightings on unsecured loans. Non-banking finance companies’ interest costs are up 27 per cent, while they reported a 17 per cent increase in profits.
 

The upstream oil sector has seen profits go down 8 per cent Y-o-Y and 19 per cent Q-o-Q. Crude oil prices have moderated and the tax on windfall profits has put a ceiling on PAT. Refinery profits are up by 65 per cent Y-o-Y but down 33 per cent Q-o-Q due to refining-margin volatility.
 

After excluding the volatile oil and gas, and financials, other sectors have registered an aggregate 5 per cent rise in net sales, 20 per cent rise in Ebitda, and 32 per cent growth in PAT. Adjusted for one-off extraordinary items, PAT growth remains impressive at 28 per cent. The operating margin is at 18.5 per cent, up by about 0.50 per cent.
 

One sign of better big-ticket consumption is that the automobiles sector has seen 20 per cent expansion in sales, with 57 per cent rise in PAT. One contributor to rising profits is Tata Motors, where the main growth in PAT has come from overseas, in JLR. However, Maruti, Hero Honda, Bajaj Auto, TVS, have all done well — better two-wheeler and small car volumes indicate better rural demand, which may have been driven by festive season discounts. Daily consumption was flat going by the fast-moving consumer goods (FMCG) sector. FMCG sales grew only 6 per cent during Q3FY24 while PAT was up 3 per cent.
 

The capital goods sector has also seen a revenue expansion of 14 per cent and PAT growth of 55 per cent, which may mean a gradual return of corporate capital investment.The software industry continues to face weak global exports demand. Sales were up 4 per cent, with PAT up 1 per cent in constant-currency terms. Another major contributor to exports — the pharma industry — has done better with a 10 per cent expansion in sales and 29 per cent rise in profits.
 

Among sectors that produce key infra inputs, cement has an overhang in terms of surplus capacity while steel and non-ferrous metals like aluminium and copper are seeing good domestic demand, offset by weak global prices. There are signs the global commodity cycle is bottoming out, however.