FY21 earnings: Good end to a tough year

Even as the second Covid-19 wave threatens to weaken demand and hurt sales, corporate earnings for the January-March period will surge thanks largely to a helpful base. But the numbers are expected to be reasonably good even after adjustments to the base. Revenues should grow to multi-quarter highs in Q4FY21 on the back of better volumes and higher prices. But profits would also get a boost from cost savings and better operating leverage, much like they have in recent quarters. In other words, gross margins may be hit by input inflation but ebitda margins are likely to have expanded. Sequential comparisons of number could be less flattering. Nonetheless, corporate India will end FY21 on a high note thanks to global reflation, serious cost cuts and gains from the informal sector.

While querying managements on demand trends in the March quarter, the Street will look for commentary on potential problems in the current quarter.

For the Sensex set of companies net profits are estimated to soar 55% year-on-year on the back of an 11% y-o-y rise in revenues and a sharp 23% plus increase in operating profits. For the Nifty 50 companies, the jump in profits is a bigger 125% y-o-y on the back of a huge 17% y-o-y increase in net sales and a 70% y-o-y improvement in operating profits. The difference stems from the fact that BPCL, IOCL and Tata Motors, which had reported large losses in 4QFY20, are members of the Nifty but not of the Sensex.

Among the sectors that are expected to do well are automobiles where large volumes —especially in the passenger car and commercial vehicles segments–are believed to have led to better efficiencies, somewhat blunting raw material price pressures. The IT services sector which has turned in spectacular performances in the last couple of quarters are expected to turn in a good show in Q4FY21 even though it is a seasonally weak quarter. Despite some wage hikes and a slight drop in utilization levels, the numbers should be strong as big deals are ramped up and companies benefit from continued spending by clients on digital programmes.

FMCG firms are expected to do well with some segments, continuing to gain share from smaller, informal, players and good rural demand supplemented by a pick-up in demand in the urban areas ; while there could have been some moderation in the demand for hygiene products, a pick-up in sales of personal care products should boost revenues. In the retail space apparel makers could have been hit by the rising prices of yarn which have risen 30% over the past six months but jewellery companies are believed to have gained from the wedding season. The impact from the pandemic would have moderated for QSRs. The engineering and capital goods sector is expected to report better execution and relatively strong order inflows. Road toll collections are understood to have hit 90% of pre-Covid levels and would benefit builders.