EBITDA growth exceeded sales for almost a third of BSE 500 companies in the first quarter.
If their operational performance is any indication, Indian corporates experienced some relief in the June quarter after battling high cost inflation and weak demand for nearly the entire FY23.According to data analysed by ETMarkets, up to 154 BSE 500 companies experienced operating profit growth that outpaced revenue in the most recent quarter.18 of the 154 companies—including Hindustan Unilever, ITC, Nestle India, JSW Steel, Bajaj Auto, Hero MotoCorp, Mahindra & Mahindra, and Dr. Reddy’s Laboratories—are included in the benchmark Nifty 50.The list does not include businesses in the banking, financial services, or insurance industries.
The majority of consumer goods companies experienced a sharp increase in their gross margins during the June quarter thanks to a decrease in the cost of key inputs, particularly crude oil and vegetable oils.Crude oil prices soared during the same quarter last year as a result of Russia’s invasion of Ukraine.According to brokerage Sharekhan by BNP Paribas, FMCG companies collectively reported an increase in operating margins of over 200 basis points on a year-over-year (YoY) basis in the June quarter.Even though businesses increased their spending on advertising and promotional activities in the quarter, this expansion still occurred.
For the June quarter, Britannia Industries reported operating profit growth of 36% but revenue growth of just 9% YoY. Similar to this, Nestle India reported an increase in operating profit of 30% YoY and an increase in sales of over 15%.Aside from businesses that manufacture consumer staples, the manufacturers of automobiles and ancillary products also experienced a significant improvement in operational performance.
Despite having lower sales volumes, the majority of companies reported a significant increase in operating margin.
Despite a less dramatic 29% increase in sales, Bajaj Auto reported a staggering 50% YoY growth in operating profit in the most recent quarter. The largest automaker in the nation, Maruti Suzuki India, reported a 56% increase in operating profit and a 22% increase in revenue in the 4-wheeler segment.Sona BLW Precision, a manufacturer of auto accessories, saw its operating profit rise by more than 47%, outpacing the 25% growth in revenue.Another global leader in the auto component industry, Endurance Technologies, reported a 34% increase in operation profit, which is twice the revenue growth it experienced in the previous quarter.Analysts increased their estimates for the sector for FY24 as a result of the significant improvement in operational performance. For the current fiscal year, brokerage IIFL Institutional Equities has increased its operating profit forecast for the automotive industry by 5.6%.
Along with the auto and FMCG industries, some cement companies also experienced cost relief. Despite a meagre 8.5% increase in sales, Ambuja Cements reported a staggering 50% increase in operating profit in the most recent quarter.Companies in the pharmaceutical and healthcare sectors saw an improvement in operational performance as a result of easing cost pressures. At least 18 of the BSE 500 companies in this sector reported operating profit growth that was greater than revenue growth.Index-major Cipla experienced a 31% increase in operating profit, outpacing a revenue increase of 18%. Alkem Laboratories, a midcap company, saw its operating profit increase by over 91% year over year despite only a 15% increase in revenue.
Bright Days Before?
The start of the fiscal year FY24 has been positive, with consensus earnings estimates seeing a slight increase, largely as a result of improved profitability.Analysts, however, believe that India Inc. is not entirely out of the woods and that there is still a chance for a downgrade.Rising crude oil prices are raising inflation concerns, and a global macroeconomic slowdown has somewhat dimmed the future. The worsening liquidity conditions make things worse.In its report, Nuvama Institutional Equities stated: “We envisage earnings downgrades to accelerate, owing to tightening liquidity, weak global growth, and fading benefits of lower input prices.”Although India appears to be well-positioned for growth over the long term, Amnish Aggarwal of Prabhudas Lilladher predicts that the economy and markets will be put to the test over the next few months.”We think that in an election year, high inflation can be a political hot potato, forcing the government to slow down.