Q4 Early Birds : Margins surge amid sluggish sales across sectors

Q4 Early Birds


Q4 Early Birds : Analysts warn that the recent increases in commodity prices may hinder margins, which have risen in recent quarters. The momentum in earnings growth may have slowed, and the benefits from falling raw material prices could be coming to an end, they noted.

Despite most Indian-listed companies reporting March quarter earnings in line with estimates so far, and showing growth in operating profit, sales have remained sluggish due to tepid demand. Q4 Early Birds

A Moneycontrol analysis of 156 companies revealed a significant uptick in the operating profit margin and net profit margin, which rose by 13 percent and 23.3 percent, respectively, to their highest level in eight quarters.

Net profit grew 11.2 percent, its fastest pace in eight quarters, with a sequential gain of 9.2%. However, net sales growth during the January-March 2024 period remained subdued at 6 percent year-on-year, compared to the 12.3 percent growth seen in the same quarter of the previous year. Q4 Early Birds

Energy, banking and financial services companies were excluded from the study.

“Broadly speaking the results so far have been mildly underwhelming as far as the topline is concerned, while margins are more or less in line or a little better than expected,” said Deepak Jasani, Head of Retail Research, HDFC securities. Q4 Early Birds

Analysts observed that despite flat or marginal sales growth, lower commodity prices drove an increase in the operating profit margin. They attributed the muted sales growth to disinflationary pressure. Q4 Early Birds


The FMCG sector witnessed subdued sales and flat profitability for the quarter. Experts attribute the stagnant profitability to elevated advertising and promotional expenses, rising royalty payments, and lacklustre sales, which partly offset the benefits of favorable raw material prices. Q4 Early Birds

HUL saw sluggish, 2 percent sales volume growth, with strong single-digit growth in half its business. The Beauty & Personal Care segment had no volume growth, while soap sales dropped by 15 percent, and tea sales remained weak in the Foods & Refreshment segment. Q4 Early Birds

Sales grew minimally (1 percent higher than last year) due to price adjustments in key categories like soaps and detergents. The EBITDA margin stayed flat.

Employee costs rose by 13 percent, royalty expenses increased, and termination fees affected other operating income. Net profit declined by 3 percent due to one-time expenses and higher interest costs. Q4 Early Birds

Nestlé India saw a 9 percent increase in sales, mainly fuelled by 9 percent growth in its domestic business (representing around 96 percent of total sales). Exports performed well, with 19 percent growth, driven by strong demand for Maggi noodles and sauces in western markets. Q4 Early Birds

Despite inflationary pressures, Nestlé’s strong category positioning allowed it to maintain pricing power, resulting in high single-digit growth. Despite challenges in coffee and cocoa due to inflation (at all-time highs), the company managed to expand its gross margin by 310 bps to 56.7 percent. The management expressed concerns about future inflation and anticipated a rise in milk prices due to the harsh summer ahead. Q4 Early Birds

IT sector

Large IT companies maintained or enhanced margins, while Midcap IT firms see improved revenue growth. However, revenue visibility remains unclear due to the global economic slowdown, high interest rates, and uncertainties surrounding GenAI’s impact. Q4 Early Birds

FY24 closed with a subdued IT sector performance, signalling caution for FY25. TCS and Tech Mahindra foresee progress, but Infosys and HCLTech anticipate ongoing challenges. HCLTech is bracing for a potential revenue decline amid deal transitions. Tech Mahindra expects better results amid AI advancements. Wipro’s CEO unveiled a turnaround plan, but faces hurdles with growth guidance and leadership issues. The IT sector will come in for scrutiny amid the tough macroeconomic conditions in FY25. Q4 Early Birds

Auto sector

In Q4FY24, among the results declared so far, the automobile sector reported healthy growth in passenger vehicles on the back of higher volumes and price hikes in the past year. Bajaj Auto’s revenue rose 29 percent YoY to Rs 11,480 crore, amid a 25 percent surge in YoY volumes. Realisation was 6 percent lower QoQ. Q4 Early Birds

The EBITDA margin was stable quarter on quarter, at 20.1 percent; lower raw material costs sequentially were offset by higher other expenses on operating de-leverage. Consequently, adjusted PAT rose 35 percent YoY to Rs 1,930 crore.

Maruti Suzuki India has reported stronger-than-expected underlying margins (12.9 percent), led by operating leverage and lower sales promotion expenses (discounts). Revenue grew by 19 percent YoY to Rs 382.3 billion (in line), with volumes rising approximately 13 percent YoY (17 percent QoQ) to 584,000. Reported EBITDA margins increased 52 bps QoQ to 12.3 percent, while PAT grew 48 percent YoY. Q4 Early Birds


Analysts added that the organised retail sector grew well on healthy urban demand. Hotels benefited from a rebound in corporate and wedding travel. On the other hand, infrastructure- and construction-related sectors (including cement and steel) posted muted numbers due to a high base and intense competition. Q4 Early Birds

Ultratech, in the cement sector, had a robust quarter with high volume growth and reduced costs. Yet, price drops raised concerns due to inconsistent pricing nationwide. The management foresees subdued demand this fiscal year but doesn’t foresee a prolonged slowdown. Q4 Early Birds

Analysts warn that recent increases in commodity prices may constrain a further expansion of margins, which have seen growth in recent quarters. The momentum in earnings growth may have slowed, and the benefits from falling raw material prices could be coming to an end, they noted. Q4 Early Birds

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Q4 Early Birds


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