Commodity producers, retail lenders and metal firms grew the fastest in Q3

Positively, many companies also said that GST-related issues are now receding

The October-December 2017 quarter (Q3) saw an uptick in the growth of domestic manufacturers, especially consumer goods companies and automakers, but retail lenders and commodity producers, including energy and metal companies, saw the fastest growth in revenues and profits. Metal companies benefited from higher commodity prices and volumes. In contrast, higher input costs have begun to bite user industries with companies reporting a rise in the per unit cost of raw materials and energy during the quarter.

Headline growth for India-focused companies was boosted by a favourable base effect and spillover from higher government spending, especially in rural areas. The latter also provided a demand boost to capital goods companies, but their growth was still muted due to lack of orders from the private corporate sector. 

Lenders saw an uptick in loan demand with their net interest income growing at the fastest pace in at least last five years. However, public sector banks (PSBs) reported losses, with State Bank of India reporting its first quarterly loss in nearly 19 years due to a surge in loan provisioning and lower other income.

The key export-intensive sectors continue to face headwind with information technology (IT) and pharma players underperforming the rest of corporate India in revenue and profit growth. IT exporters reported their sixth consecutive quarter of low single-digit growth in net profit and revenues, while drugmakers reported decline in profits for the fifth time in the past seven quarters. 

Positively, many companies also said that the goods and services tax (GST)-related issues are now receding.

Banks & finance

 

Retail lenders such as HDFC Bank saw good loan growth, stable asset quality 

Margins were under pressure for some banks due to lower share of current and saving account deposits and slower deposit growth

Climbing bond yields meant lower treasury income, and thus muted other income. This coupled with weak credit growth hurt earnings of most PSU banks

Higher provisions for bad loans weighed on the performance of PSU banks, and will be a key parameter to watch out for

 

Automobiles

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Volume growth was robust, especially for two-wheelers and commercial vehicle makers due to new launches, rural growth and a low base

Operating leverage, better product mix, price hikes and cost control boosted profitability of most players including

Maruti and Tata Motors; latter’s India business turned around

Tractor and commercial vehicles growth is expected to be strong on rural uptick and infrastructure spending initiatives

Despite the volume growth, margins may see some pressure due to the rise in input costs

Automobiles

Oil & Gas

Benchmark Singapore gross refining margins (GRMs) at $7.3 a barrel in Q3 were marginally lower sequentially, but higher year-on-year

Reliance Industries continued to clock strong GRMs of $11.6 as did oil marketing companies, which also saw inventory gains due to higher oil prices

Strong petrochemical margins and new refining and petchem capacities also benefited Reliance Industries 

The 20 per cent rise in oil prices boosted realisations of ONGC and Oil India; gas utilities gained from strong gas demand

Oil and gas

Capital goods & Infrastructure

Most capital goods majors beat estimates, which along with favourable proposals in the Budget is leading to optimism 

GST-related issues are behind and order inflow and execution improved for most players

While domestic capex revival is key, some green shoots are visible

L&T’s 20 per cent year-on-year rise in domestic orders in the first nine months of FY18 is positive for its engineering and construction segment as well as margins 

BHEL, too, surprised with higher margins and order flows 

Siemens’ energy and digital sales offset weakness in other segments

Capital goods & Infrastructure

Fast-moving consumer goods

A woman shopping at a supermarket

Strong volumes across segments led by price cuts and lower base helped companies report double-digit growth in revenues with Hindustan Unilever standing out both on revenues and margins

Richer product mix and operating leverage boosted margins  

While domestic business of most consumer companies were strong, international business segments of Godrej Consumer and Dabur reported a weak performance

Domestic demand is expected to recover on the back of higher rural growth, marketing spends and stabilising of trade channel

Fast-moving consumer goods

Information technology

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Seasonal weakness and muted show of financial services vertical impacted growth of larger players, but mid-tier players stood out on large deal wins

Retail vertical surprised positively; digital is getting traction and now accounts for a quarter of revenues 

Big deals now coming to tier I firms

Profitability was flat sequentially due to pricing pressures, currency headwinds and higher onsite costs

Outlook across verticals is positive on the back of healthy deal pipeline, expected client spending and rising digital budgets

Information technology

Metals & Mining

File photo of mining being done

Firm base metal and steel prices benefited players such as Tata Steel, JSW Steel, Hindalco and Vedanta

Tata Steel and JSW Steel maintained their strong show, while SAIL and Jindal Steel saw big improvement led by expansions and better pricing 

Higher prices is helping offset the impact of rising prices of inputs such as coal, iron ore, alumina, etc

Improved cash-flow is helping players like Hindalco and Vedanta to pare debt and fund expansions  

Re-stocking of coal by power plants and improved e-auction prices helped Coal India’s performance

Metals & mining

Pharmaceuticals

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Major players continue to feel the heat of pricing pressure in the US, which impacted their performance

US sales of Lupin, Dr Reddy’s, Taro and Cipla fell by 2-40 per cent

Lupin and Dr Reddy’s saw slow approval rate and delay in product launches impacting their growth

Cipla with higher contribution from India and Africa remains better placed; being a late entrant in the US is also helping 

Aurobindo, with its niche product range, remains an exception and is clocking good growth in the US as well as Europe

* Consolidated results; # share price change is for fiscal year-to-date; share price is rounded off; table includes top companies in each sector based on net sales; financials based on reported numbers; PBIDT is profit before interest, depreciation and tax (excludes other income)       

Source: Capitaline; compiled by BS Research Bureau