The Indian corporate sector witnessed a steady growth momentum in their earnings during quarter 3 of FY 2021. Compared to the previous financial year, both net profit and revenue expanded in double digits.
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Growth Trend in Indian Companies
Around 254 Indian companies have already announced their Q3 earnings. According to an analysis, revenue jumped 28.4% for these companies. Meanwhile, net profit increased by 17%.
Moreover, top-line growth was advantageous through a low base during the same quarter in 2020 when revenue decreased 1.2%. Even the net profit growth points out the fact that the companies have experienced a more than doubled profit of 142% during the previous year.
The operating margins of these firms came down to 250 basis points YoY to reach 21.6%. This figure shows that the margin performance is going as per expectations as India Inc featured a cost-optimisation mode during the previous years’ quarters to secure profitability in times of feeble topline growth. At the same time, input costs have increased because of rising commodity prices.
Earlier, analysts expected massive aggregate growth, with high performance by a few specific sectors. However, 42% of Indian firms are likely to post YoY earnings decline, and around 38% will publish higher than earnings growth of 15%.
The initial trend of impressive earnings was started by Reliance Industries Ltd., which is the largest company in terms of market cap and revenue. Further, technology-driven firms TCS and Infosys followed this trend. Altogether, these firms contributed 58.1% to the net profit of the 254 companies and 52.1% of the topline to the sample. Excluding these three firms, the profit and revenue of this group totalled 13.4% and 18%, respectively.
Early Q3 Earnings Show Margin Pressure
Early publishing of the Q3 financials indicates that higher input costs continue to be an irritant. Although earnings stood within the line of expectations, profit margins had moderate growth for another quarter.
As per analysts, a continued surge in COVID-19 cases and a rise in crude oil prices will put margins under pressure for the current quarter as well.
Another major worry was demand, which did not increase despite the festive season. Delayed monsoon harvesting, elevated inflation and COVID-19 cases surge may have contributed to this lazy demand trend in the third quarter of FY 2021.
More earnings from different sectors in the coming weeks will expectedly change this trend. Anticipated weaknesses from sectors such as cement, FMCG, automobiles, minings and metals may lead to overly cautious aggregate performance. Amid these, analysts are eyeing the Union Budget, which is scheduled to happen on 1 February 2022. Investors hope that the government may announce specific measures to combat investment and consumption in the country.
Source – The Economic Times
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Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.
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