The second set of quarterly results were announced by companies in the month of May 2016. Most of the Auto companies have reported rise in profitability with moderate revenue growth while large cap FMCG companies have reported tepid volume and revenue growth on a year on year and sequential quarter on quarter basis. Public sector banks have been in the focus due to rise in provisions and NPA’s. Aviation has reported rise in profitability due to bottoming of crude oil prices in the last quarter of FY 2015-16 but the road ahead looks tough as the commodity has risen sharply by 50% to USD 50 per barrel in the month of May 2016.
The effect of lower commodity prices resulting in higher profitability and margins has peaked in the FY 2015-16. It will be difficult for companies to sustain this trend in the FY 2016-17 and they will have to come up with innovative solutions to sustain growth momentum to maintain premium valuations.
Macroeconomic conditions are becoming favourable and the momentum is expected to sustain in the medium to long term. The GDP growth was reported at 7.9% for the January – March 2016 quarter and 7.6% for fiscal 2015-16 for the Indian economy. Consumer Durables, FMCG and Auto should gain as the GDP growth picks up further pace.
Let us analyse future performance of the corporate sector by looking at the guidance given by companies in the fourth quarter. The results that were announced in the month of May 2016 have been analysed.
Company wise fourth quarter FY 16 performance
Bajaj Auto reported a net profit of Rs.8030.6 million for the quarter ended March 31, 2016, registering growth of 29.19% yoy, but decline of 10.92% qoq. The company’s revenue stood at Rs. 54114.2 million, up 14.18% yoy but down 2.76% qoq. The Operating profit margin for Q4FY16 at 21.28% contracted by 302 bps yoy but expanded by 59 bps qoq. Strong growth in year on year revenues for the quarter along with rise in profitability led to an uptick in the stock price after the announcements of the results.
TVS Motor company posted a net profit of Rs.1177.60 million for the quarter ended March 31, 2016 compared with Rs.905.20 million for the quarter ended March 31, 2015. Total income increased from Rs.24534.20 million for the quarter ended March 31, 2015 to Rs.28396.00 million for the quarter ended March 31, 2016.The Company has earmarked Rs.4 billion for expenses related to capacity expansion across its production facilities in India during FY2016-17. The margins fell in Q4FY16 due to expenses incurred on advertising and marketing for its new product portfolio.
Hero MotoCorp reported net profit of Rs.8141.6 million for the quarter ended March 31, 2016, registering growth of 70.85% yoy and 2.31% qoq. The company’s revenue stood at Rs.75121.7 million, up 10.57% yoy and 2.98% qoq. Hero sold 17,21,240 units of two-wheelers during the period, more than 9 per cent higher than the 15,75,501 units it sold in corresponding period last year.
Mahindra & Mahindra (M&M) reported a rise of 6.02 per cent in its net profit at Rs.5837.3 million for the quarter ended March 31, 2016 as compared to Rs.5505.6 million for the same quarter in the previous year, driven by robust sales in the utility vehicle segment. Total income of the company increased by 14.58 per cent at Rs.109124.5 million for quarter under review as compared to Rs.95240.4 million for the quarter ended March 31, 2015.
The EBITDA and net profit margins improved in FY 2015-16 as compared to FY 2014-15 due to softening of commodity prices and this effect is not going to last much longer due to uptick in commodity prices in the last quarter of FY 2015-16. The rural demand and GDP growth have to pick up for the passenger vehicle and the two wheeler segment to show higher growth compared to that shown in the April 2015 to March 2016 period.
Interest rates are not expected to come down sharply in the FY 2016-17 and companies will have to keep on spending on advertising and promotions for growth in revenues from the current higher base. Monthly sales data would start indicating the trend for Auto companies in the year ahead.
The valuations for Passenger Cars, Two Wheeler and Medium and Heavy Commercial Vehicle Segment Automobile stocks continue to remain high as they are delivering growth despite below average performance from most other sectors of the economy. Two Wheelers sales registered a growth at 21.23 percent during April 2016 over April 2015. Within the Two Wheelers segment, Scooters, Motorcycles and Mopeds grew by 35.86 percent, 16.24 percent and 10.71 percent respectively in April 2016 over April 2015. The sales of Passenger Vehicles grew by 11.04 percent in April 2016 over the same month last year. The overall Commercial Vehicles segment registered a growth of 17.36 percent in April 2016 as compared to the same month last year.
Jet Airways posted a consolidated net profit of Rs.4260 million in Q4FY16. In the same quarter last year, it had a net loss of Rs.18030 million, due to the write-off of its equity investment in subsidiary Jet Lite. The airline reported its highest ever consolidated annual profit of Rs.12120 million in FY16 and the company also reduced debt by Rs.16800 million in FY16.
Revenue on a standalone basis grew a modest 3.5 per cent to Rs.52450 million over a year but a 25 per cent decline in the fuel bill helped the airline lower its costs and report a profit. Overall expenses on a were 13 per cent lower over a year, with less spend on salaries, sales and distribution, maintenance and other operating costs.
Crude oil prices have already recovered to USD 50 per barrel in the month of May 2016 and the Aviation Turbine Fuel (ATF) prices have been increased by 9.2% to Rs.46729.48 per kilo litre on the 31st of May 2016. This would have implications for the Aviation sector and operating costs would start to rise if this trend continues in the coming quarters. Passenger traffic growth should continue to drive growth in revenues and profitability rather than increase or decrease in fuel costs for the stocks to create value for shareholders in the long term.
Hindustan Unilever (HUL) reported a net profit of Rs.10895.9 million for the quarter ended March 31, 2016, registering growth of 7.02% yoy and 12.17% qoq. The company’s revenue stood at Rs.79456.6 million, up 3.52% yoy but down 0.44% qoq.
HUL’s revenue rose by 3.5% while its material costs declined by 1.5% from a year ago. Advertising and promotion costs rose by 6%, lower than in previous quarters. HUL was able to post an 11.3% growth in operating profit, higher than in the preceding two quarters because of lower raw material input costs. It also resulted in a 1.3 percent expansion in operating profit margin from a year ago.
Weak consumer demand has slowed down growth in revenues for FMCG companies. Rapidly growing popularity of Patanjali products is now a growing concern for listed FMCG firms. Most hopes for growth in the next few quarters hinge on demand from consumers in urban areas. Forecasts of a good monsoon have brought hopes of a revival in rural demand for FMCG companies.
State Bank of India has declared their results for the quarter ended 31st March 2016. The bank’s net profit fell 66.23% to Rs.12638.1 million on 10.10% increase in total income to Rs 535269.7 million in Q4 March 2016 over Q4 March 2015. The bank’s gross non-performing assets (NPAs) stood at Rs.981728 million as on 31 March 2016 as against Rs.727917.3 million as on 31 December 2015 and Rs.567253.4 million as on 31 March 2015.
The ratio of gross NPA to gross advances stood at 6.5% as on 31 March 2016 as against 5.1% as on 31 December 2015 and 4.25% as on 31 March 2015. The ratio of net NPA to net advances stood at 3.81% as on 31 March 2016 as against 2.89% as on 31 December 2015 and 2.12% as on 31 March 2015. The bank’s provisions and contingencies rose 89.74% to Rs.131740.5 million in Q4 March 2016 over Q4 March 2015. The provisions and contingencies include provisions for NPA.
SBI’s provisions for NPA jumped 143.47% to Rs.121391.7 million in Q4 March 2016 over Q4 March 2015. The provision coverage ratio of the bank stood at 60.69% as on 31 March 2016.
For Q4FY16 asset quality continues to remain under pressure for Public and Private sector Banks, as RBI has asked them to clean up their books and be proactive towards NPAs accounting and implementing. The worsening asset quality and muted credit growth would remain a concern for banks in FY17. In the second half of FY17 banks are likely to report better quarterly results on back of base effect.