The earnings season has got off to a subdued start, with virtually every heavyweight disappointing the Street. Net profits of a sample of 164 companies (including banks and financials) were up 7% year-on-year on the back of an 8% rise in revenues. But net profits would have fallen but for a 23% jump in other income.
The across-the-board miss in estimates suggests the Street has been unable to gauge the extent of sluggishness in demand, whether for IT services or for consumer goods. Among the reasons the managements have attributed to the indifferent numbers include muted consumer demand, elevated commodity prices and higher advertising and promotion spends amidst competitive intensity.
Also, some businesses were disrupted by heavy rains this season. Demand so far in the festive season has been low. For the sample companies, operating margins have contracted 63 basis points (bps).
At Avenue Supermarts, the growth in same-store-sales (for stores that are of two years or older) decelerated to 5.5% from 9.1% in Q1FY25. The management attributed the deceleration to heightened competition from quick-commerce companies. The subdued rise in revenues resulted in a contraction in the Ebitda (earnings before interest, tax, depreciation and amortisation) margin of 40 basis points and a muted 10.3% increase in operating profits. Nestle reported poor volumes which fell 2% and weak domestic sales growth of just 1.2%, a big miss. The company’s Ebitda margin fell by 140 bps missing estimates and leaving the Ebitda growth at sub 5%.The management has attributed this to muted consumer demand and elevated commodity prices.
Although Havells was able to grow revenues by a strong 16.5%, higher costs pushed down margins by 120 bps. Bajaj Auto’s net revenues came in below estimates with the average selling prices coming in lower than those pencilled in. The product mix has been inferior for both the local and export markets. Gross margins were weak and analysts estimate that, adjusted for productivity-linked incentive benefits, the Ebitda margin contracted by 50 bps.
Reliance Industries’ consolidated Ebitda, down 5%, was below estimates, primarily due to a weak O2C performance. The profit after tax (PAT) was down 3.9%, missing estimates. The organised retail segment’s revenue growth was muted while the telecom segment benefited from the tariff hike.
Tata Consultancy Services (TCS) missed estimates for profit margins; the Ebit (earnings before interest and tax) was down 60 bps quarter-on-quarter at 24.1%. Consequently, the software services giant’s net profits fell 1.1%, also missing estimates. Infosys reported reasonably good numbers as revenues grew 3.8% sequentially. The company posted flat Ebit margins of 21.1%.
Analysts say there are few signs that demand will reverse to normal even in FY26. The modest deal value of about $17 billion in H1FY25, lower by 21% y-o-y, isn’t encouraging. Tata Elxsi’s sequential revenue growth of 0.2%, in constant currency terms, was weak. The adjusted Ebit margins fell 140 bps sequentially. With loan growth slowing and deposits having become costlier, HDFC Bank’s standalone net profits were up just 5.3% y-o-y. At Kotak Mahindra Bank, higher provisions limited the rise in profits to 5% y-o-y.
From: financialexpress
Financial News
