Demand revival

Corporate results show growth momentum continues

An examination of the company results for Q4FY24 (January-March 2024) indicates corporate growth recovery continues with some margin expansion. However, banks and financials have contributed a high proportion of overall profits, and many of the large public-sector enterprises (PSEs) that dominate the energy sector have not released results yet. So trends in certain key sectors may not be readily apparent. Overall, 1,040 listed companies with a cutoff of minimum sales of Rs 1 crore in Q4FY24 have reported results. They have reported 10 per cent growth in net sales, 21 per cent rise in earnings before interest, tax, depreciation, and amortisation (Ebitda), and 18 per cent growth in profits after tax (PAT). Excluding volatile sectors such as banks, other financial players, and oil companies, the remaining companies have declared 7.8 per cent growth in sales, 13 per cent growth in Ebitda, and 17.7 per cent growth in PAT. Notably, banks saw 24.5 per cent growth in interest income and 46 per cent rise in reported PAT.
 

For several quarters, the economy has been driven by government spending with low consumption demand. It’s not clear if this situation is changing. In terms of big-ticket consumption, the auto sector is indeed seeing high demand, with better unit volumes and improving average selling prices. In the auto segment, the quarter saw Maruti and the two-wheeler majors — Hero, Bajaj Auto, and TVS — reporting a strong showing. Good volume offtake from the two-wheeler segment and Maruti is usually a strong indicator of consumption demand. However, performances in the fast-moving consumer goods (FMCG) sector are also considered to be indicative of broader consumption demand and there the results were not so impressive. Sales grew by 7 per cent across the sector but profitability was distorted by Godrej Consumer taking a big impairment in overseas operations due to currency issues. Adjusting for that event, Ebitda rose by 12 per cent and PAT by 13 per cent. However, most companies reported low volume increases and squeezed out better results on the basis of price hikes.
 

Information technology (IT) and pharmaceuticals are the two sectors that are considered bellwether for exports. IT companies issued cautious advisories as they have now done for the past five quarters. They reported 3 per cent sales growth in constant-currency terms, 8 per cent rise in Ebitda, and 9 per cent rise in PAT. Cutbacks in headcounts continue. The pharma sector did much better with 8 per cent rise in constant-currency sales, 34 per cent rise in Ebitda, and 50 per cent rise in PAT. To a large extent, raw material and supply-chain concerns caused by the impact of Covid on China’s Wuhan Province (which is a key production centre for drugs) have eased. The policy focus on infrastructure development has meant strong demand for construction companies and for key building materials like cement and steel. However, the general elections have led to a tapering off in government tenders, which will also affect Q1FY25. The steel industry, for instance, saw flat sales with lower profits and Ebitda as global steel prices have dropped.
 

The Q4FY24 results are, therefore, mildly encouraging. They do suggest that economic growth continues and there may be a revival in consumption demand. But the soft global economy is cause for concern, affecting demand for software services and commodities like steel and other industrials. Interest costs are also up across the board — the entire sample reported a 30 per cent rise in it and this is hurting profitability even in industries where other raw material costs have eased.