With the two-month-long nationwide lockdown, the first quarter was a complete wash out for India Inc. Corporate earnings plunged more than 42 per cent (YoY) in the June quarter as everything remained shut due to Covid for much of the period. Based on the results declared so far, by 1,495 companies, the topline of listed entities (excluding banks and finance firms) was down 33 per cent in the first quarter compared to the corresponding period last year.

Almost all sectors, barring banks and financials, insurance, agro-chemicals, pharmaceuticals, and information technology, reported a steep decline in their topline. The worst hit were companies in the hospitality and travel industry. Despite domestic air travel resuming from May 24, InterGlobe Aviation (operator of IndiGo Airlines) reported an 88 per cent decline in total revenues. The company ended the June quarter with a net loss of ₹2,844.3 crore compared to a net profit of ₹1,203.1 crore in the June 2019 quarter.

With the lockdown stalling production and consumers curtailing discretionary spends, some automobile companies also reported huge losses. The market leader, Maruti Suzuki, posted its first quarterly loss — of ₹249 crore — in over a decade, following an 80 per cent fall in volumes and revenues in the June quarter.

Non-discretionary consumption, however, remained buoyant even during the lockdown. This aided FMCG companies. Hindustan Unilever reported a 3.6 per cent and 5.7 per cent (YoY) increase in total income and net profit, respectively.

Despite additional Covid related provisioning, banks managed to report healthy earnings growth. This was mainly due to a low earnings base (2019 June quarter) and optical respite on the asset quality front due to the six-month moratorium on loans granted to borrowers. Private lender HDFC Bank reported a 19.6 per cent jump in the profit-after-tax, on the back of healthy growth in loan book and stable margins.

Info-tech companies saw a 2.6 per cent growth in profits, despite a moderate 4.5 per cent growth in aggregate revenues. This was due to higher employee related costs.

Margins inch up

Amid weak demand and sales, a tight rein on costs aided margins of manufacturing companies. In the June quarter, these companies reported a jump in operating margins. Of the 1,495 companies that have reported numbers for the June quarter, 906 were from the manufacturing sector. The operating margins of these companies rose to 18 per cent in the June quarter compared to 10 per cent in March 2020.

With lower production volumes, direct costs such as on raw materials and power and fuel fell 51 per cent and 28 per cent, respectively, compared to the June quarter last year.

Cash-strapped, many companies resorted to cost-cutting measures such as reduced advertisement spends, furloughs and pay-cuts. This is evident from the decline in the selling and administration expenses and employee costs of the manufacturing companies, which were down by 19 per cent and 7 per cent, respectively.

However, in absolute numbers, the operating profits were down 25 per cent compared to the June 2019 quarter. Aside from fixed costs weighing on the earnings, a 2.2 per cent increase in interest costs dampened profits. However, a 34 per cent drop in the tax outgo, owing to companies moving to the new (lower) tax structure, helped cushion the blow.

The overall earnings trend can alter going forward, with many companies yet to report their numbers for the June quarter.