Early birds should be concerned about margin

The majority of businesses and banks have reported results that are in line with forecasts, giving the earnings season a moderate start. Bajaj Auto is the only one among the 93 early birds to surpass projections; Hindustan Unilever has been a major letdown. The FMCG giant’s net earnings decreased 5.5% year over year, despite just 3% growth in sales.

 

The sample’s net sales increased by 17.4%, mostly as a result of a 29% increase in Bajaj Auto’s revenue. However, despite a significant 24% increase in total spending, operating margins decreased by 420 basis points year over year. Net earnings for a sample of ninety-three enterprises increased 12.6% year over year, despite a massive 190% increase in other revenue and a decrease in raw material prices.

The IT team performed a routine act. TCS reported a 1.1% quarter-over-quarter increase in sales in constant currency terms, about in line with projections. Nevertheless, the margins increased by a sharp 100 bps q-o-q and 150 bps y-o-y thanks to the cost optimization of resources. Significantly, the $13.2 billion in transaction wins during the quarter were particularly robust.

Infosys revealed a 2.2% drop in sales, below projections. Furthermore, the revenue projection for FY2025 is only predicted to be 1-3%, down from the previous 4-7%, indicating that discretionary spending is not likely to improve. The Street thinks the revenue forecasts are reasonable, however, because of the significant contract wins.

Though growth may have slowed, HDFC Bank performed quite well among banks. The steady net interest margins and growing liability franchise gave analysts hope.

A richer product mix in both the home and foreign markets contributed to Bajaj Auto’s impressive 34% year-over-year increase in Ebitda, which exceeded projections. Strong year-over-year volume growth of 24% was recorded in the quarter, mostly due to a 31% year-over-year rise in domestic 2-wheelers on stable demand trends and some favorable base effects. The operating profit margin on its own increased by a respectable -80 basis points year over year to 20.1%.

Despite volumes growing by only 5%, Tata Consumer Products’ sales increased by just 8%, falling short of analysts’ estimates. Nonetheless, due to robust operational cost management and lower material costs, the operating margin increased by 190 basis points year over year.

Hindustan Zinc, a metals manufacturer, benefited from lower costs as its earnings before interest, tax, depreciation, and amortisation (ebitda) decreased by 14% year over year. The management does not anticipate significant increases in volume or gradual cost savings.

As may be anticipated given the low demand and pricing constraints, Rallis’s results were modest. The PBT and Pat levels showed larger than anticipated losses. Tata Communications had a lackluster quarter as its organic data revenue growth slowed to 4.8% year over year and its margins declined sequentially. In 4QFY24, Tata Elxsi’s sales decreased 0.6% qoq, far less than expected, with a muted performance across all verticals. Analysts are concerned about the growing reliance on the top-5 customers and the lower margins.