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In Q4, revenue cheer and profit woes

Rise in revenue after five quarters as commodity prices bottom out and software exporters grow faster

Krishna Kant  |  Mumbai 

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The results season for the January-March 2016 quarter (Q4) has started on a disappointing note, thanks to a record loss posted by energy major Cairn India. The Vedanta group company reported a loss of Rs 10,948 crore, pushing the aggregate growth in the red.

On the brighter side, revenue growth turned positive for the first time in the last six quarters as commodity prices bottomed out and information technology (IT) exporters, such as Tata Consultancy Services and Infosys, reported faster top-line growth.

The combined net profit of 63 companies across sectors was down 25 per cent on a year-on-year basis during the quarter to Rs 16,474 crore. The combined revenue (including other income) was up 2.5 per cent during the quarter to Rs 1.7 lakh crore, growing at the fastest pace in the last seven quarters.

Excluding Cairn India and TCS, whose numbers are not comparable on a year-on-year (y-o-y) basis, net profit growth disappointed at 13.8 per cent y-o-y, which was better than 10.6 per cent y-o-y growth a year ago but lowest in the last four quarters. The combined revenue growth at 0.6 per cent is highest in the last seven quarters. While Cairn India's profits were hit by an impairment charge of Rs 11,674 crore on account of lower crude oil price and adverse long-term impact of revised cess on its Rajasthan assets, TCS' profit was hit by a special employee bonus of Rs 2,628 crore last year.

The country's top brokerages expect BSE Sensex 30 companies' net profit and revenue to grow by 14.6 per cent and 1.8 per cent y-o-y, respectively in the fourth quarter. The early bird sample has five Sensex companies and all of them have met street expectations. The analysis is based on the numbers for 62 companies that have declared their fourth quarter results so far.

The early bird results largely reflect the growth trajectory of the seven biggest companies in the sample namely Reliance Industries, TCS, Infosys, HDFC Bank, Wipro, Hindustan Zinc and Cairn India. These companies together accounted for 86 per cent and 88 per cent of the sample's combined net profit and revenue during the fourth quarter, respectively.

In Q4, revenue cheer and profit woes
While Reliance, TCS, Infosys and HDFC Bank proved to be growth engines, with their earnings growing faster than the sample, Wipro, Hindustan Zinc and Cairn India were laggards.

At the aggregate level, companies continue to make gains from lower raw material prices despite steadily rising employee costs. Combined operating margins for the sample excluding Cairn and TCS were an all-time high of 34.1 per cent (of revenues), up 422 basis points on a y-o-y basis and 220 basis points sequentially. One basis point is one-hundredth of a per cent.

Raw material intensity hit a record low of 31.5 per cent (of revenues) in the fourth quarter, down 780 basis points y-o-y and 473 basis points quarter-on-quarter.

Lower raw material costs more than made up for the rising wage bill, which grew faster than the revenue growth.

Employee cost for the sample (excluding TCS and Cairn) was up 17.6 per cent y-o-y during the quarter against 0.6 per cent y-o-y growth in revenues.

Every Rs 100 worth of revenue in the fourth quarter cost Rs 16.2 worth of labour, up from Rs 13.9 during the corresponding period a year ago and Rs 15.1 during the third quarter. This will begin to pinch companies once commodity prices stabilise.

Analysts refuse to read too much into the early birds numbers and point at individual performances.

"It is too early to analyse the numbers as key manufacturing and infrastructure companies are yet to declare their results. But numbers for IT companies and few private sector banks that declared their results have been encouraging," said Dhananjay Sinha, head, institutional equity, Emkay Global Financial Services.

First Published: Mon, April 25 2016. 06:41 IST