What are the key expectations from first quarter results?

download 1 2 What are the key expectations from first quarter results?

The June quarter kicks off in a few days and the recently concluded March quarter has been better than expectations. Here are some of the key takeaways from the Mar-21 results in terms of macro growth trends. On a yoy basis the sales revenues for the Mar-21 quarter were up 15.5% while the gross profits doubled on a yoy basis. The net profits were up almost 7-fold but that was more due to a low base.

A better way would be look at the macro numbers on a sequential qoq basis. However, even that growth was quite impressive in the March quarter. While sales may have been flat with just 1% growth sequentially, the gross profits more than doubled and the net profits were up by 47% on a sequential basis. This was largely supported by a 16% drop in interest costs on account of lower cost of funds.

Key sectors that performed in Mar-21 and what is the outlook for Jun-21?

Here we look at key sectors that performed well in the Mar-21 quarter and the expected performance in the Jun-21 quarter.

a) It was a good Mar-21 quarter for automobiles sector with 10.9% growth in sales and 32.9% growth in profits on qoq basis. For the Jun-21 quarter, the auto numbers likely to be mixed. That is because April and May numbers were relatively tepid due to the downstream impact of COVID 2.0, although June was a lot better.

b) Cement and construction material companies in Mar-21 quarter saw top line and bottom line up around 17.5% and 36.4% respectively on higher volumes and better price realizations. This is the one sector that saw relatively robust demand despite COVID 2.0 and while sales growth may suffer sequentially, PAT growth should still be above 20%.

c) FMCG had a subdued quarter. Sequentially, revenues were up 4.4% but profits were down -0.8% as higher input costs put pressure. The June quarter is likely to put further pressure on top-line and bottom-line on a sequential basis as many of the FMCG companies faced a demand crunch due to the lockdown.

d) Metals and mining stocks were the stars with sequential growth of 22% in sales and 15.4% in net profits for the Mar-21 quarter. The prices continue to remain robust and despite some hiccups in local demand, global demand is robust. The metals spaces should see the growth of Mar-21 quarter repeating in Jun-21 quarter also.

e) Another sector that outperformed was oil & gas with sales growth of 6.5% and net profit growth of 85%. With crude prices remaining above $76/bbl in the Brent market, the Jun-21 quarter is likely to see robust growth on the bottom line due to stable GRMs and better translation gains in the quarter.

f) IT stocks grew top line by 2.7% with robust guidance but profits were down -16.8% as cost pressures and lower embedded profit margins were visible. For the Jun-21 quarter, the gains will again be on the top line with bottom line pressures continuing.

g) Bank revenues were lower in the Mar-21 quarter by 3.2% sequentially, largely due to pressure on corporate loan books and lower yields. A spike in provisioning also meant that net profits of banks were down 5.7%. With the RBI Financial Stability report hinting at a spike in NPAs, we expect more aggressive provisioning in the Jun-21 quarters by banks putting further pressure on the bottom line.

Lockdown will have a deep impact in Jun-21 quarter

The COVID 2.0 syndrome which kicked off in April and was pronounced through most of May is likely to have an inordinately large impact on the manufacturing sector. While the disruption of business was not as bad as 2020 and the companies were better prepared for it, the pressure is likely to show up. The outperformance will come from services and the less cyclical spaces.

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