Internal Meeting Notes on 3rd Qtr FY 20 Results
Q3Fy20 earnings show had started on a cautious note with IT pack reporting the first trends of earnings season. Infosys and HCL Tech reported strong results and the management of Infosys had increased revenue guidance going forward. However, other set of IT companies had reported low single-digit growth for Q3Fy20. Such tepid performance by most of IT companies is mainly due to slowdown seen in the BFSI sector and management commentary on future guidance has been subdued for Q4Fy20. Fast-growing IT companies which are predominantly into semiconductor and automation segment have reported a strong set of numbers, Tata Elxsi and LTTS managed to report double-digit Q-o-Q revenue growth.
Hindustan Unilever reported 5% (Y-o-Y) growth in volume and 10% (Y-o-Y) growth in revenues. Management said rural markets are yet to recover, with demand growth now at 0.5 times that of urban centers. A few quarters ago, rural growth was faster. The Union budget fell short of expectations as far as giving a boost to consumption demand goes. Dabur India, which reported a volume growth of 5.6% (Y-o-Y) for the December quarter. Godrej Consumer Products saw a higher 7% (Y-o-Y) volume growth but that has come off due to a relatively low base. Marico reported a 1% decline in India volume.
Within the steel sector, JSW Steel reported a 14% (Y-o-Y) decline in total income. During the quarter, EBITDA per tonne is Rs 6,622 on a stand-alone basis. Moreover, the cost of production has come down by 5% during the quarter driven by the coking coal prices. Jindal Steel and Power Ltd(JSPL) experienced a 2.8% (Y-o-Y) decline in revenue during Q3FY20. During the mentioned quarter, JSPL reported net loss.
On the retail front, Asian Paints reported disappointing results with 3% (Y-o-Y) growth in revenues which is mainly attributed to the slowdown in the economy. However, Avenue supermart and Reliance Retail have reported strong double-digit numbers as they have expanded their distribution networks respectively in Q3Fy20. FMCG big giants are yet to report quarterly earnings which will give a better fairer view on the retail segment.
Auto sector which is going through doldrums as sales of major auto companies are witnessing a decline in auto sales for the last 3 months. However, new entrants like Kia and MG Hector are gaining market amid a slowdown. Maruti Suzuki reported 4% (Y-o-Y) increase in net profit on account of lower commodity prices and reduction in the corporate tax rate, partially offset by higher sales promotion expenses and higher depreciation. On the contrary note, Tata Motors managed to post a net profit after two-quarters of huge losses. On a consolidated basis, Tata motor reported profit as the JLR sales in China have shown signs of revival with strong revenue growth of 24% and volume growth of 3%, however, the domestic business reported loss. Coronavirus outbreak in China could hurt sales in the coming quarters and would put pressure on profitability for Tata Motors. On Auto ancillary front, PPAP Automotive and Subros reported a decline in revenue and profitability as a ripple effect of fall in Auto sales during Q3Fy20.
Due to weak passenger growth during the December quarter, Interglobe Aviation had reported below the guidance revenue figures. Revenue increased by 25% (Y-o-Y) as the airline company managed to gain significant cargo business market share and yields have increased by 2% (Y-o-Y). The cash balance for Indigo increased by 44% (Y-o-Y).
On the banking front, slippages continue to rise. Due to weak economic growth net interest income growth was slower, asset quality remained weak, provisions have risen. The majority of the banks expect the operating environment to remain challenging in the near future. The banking sector is facing headwinds from credit quality issue, the retail risk is expected to rise in vehicle and microfinance segments.
Cement sector stocks gained momentum in the month of January as cement manufacturers have increased the prices in major parts of the operating areas. Ultratech Cement net profit rose by 43% during Q3FY20 on yearly basis. UltraTech management said the signs of revival were visible in some markets during the latter part of October-December quarter (Q3FY20).
Global Stocks Earnings:
On the global front, Apple reported stellar results with topline increased by 9% (Y-o-Y) and net profit witnessed 19% (Y-o-Y) growth. iPhone sales for the quarter had witnessed strong demand and services & wearables had reported a 20% growth in revenues during the quarter. Tesla reported the highest ever positive operating cash flows during the last quarter of Fy19, post announcement of results share price of Tesla sky-rocketed by 11% to all-time highs of USD 648.
Amazon Inc reported 21% (Y-o-Y) growth in revenues, the share price of Amazon soared by 12% post-market hours. Amazon’s cloud business reported 30% (Y-o-Y) growth and AWS witnessed 35%(Y-o-Y) growth in revenues. The company now accounts for more than 150 million paid Prime members around the world which surged by 50% from April 2018.