Wednesday, June 14, 2017

Observations on FY17 results: CARE

Below mentioned are various factors contributing to the growth and de-growth in sales and profit for the FY17 as revealed by various companies in their investors’ presentations;

Most of the industries in Q3 and Q4 2017 that have posted lower growth numbers were affected by the liquidity crunch caused by the demonetization drive of the government. The effect was felt most by the smaller companies as we can also see from the financials. This led to slower movement in the consumer durables, industrial activity, etc which led to lower sales during the quarter.
 Cement: The industry sales increased but at a slower rate and performed better at the net profit level registering a growth of about 19% during the year. However, the performance was skewed on account of weak performance in Q3 and Q4 as the industry was affected by delay in execution of projects, slow construction activity and surplus inventory in urban real estate. As a good proportion of transactions happen on cash basis, the activity had slowed down. However, the year witnessed positive profits margins on account of government spending on infrastructure. Top 5 players in cement industry have recorded a cumulative rise in sales by 4% in FY17.
 Automobile: FY17 has been an eventful year for the auto sector. Auto industry impacted sharply on account of the demonetization drive. Total auto industry sales slowed down during the year while at the net profit level, the industry saw a large dip on account of one of the companies in the Trucks/LCVs segment registering huge losses. However Tractors saw a turnaround in situation with sales increasing by a sharp 21% y-o-y and passenger cars sales slowed down and increased by about 9% in FY17. The Auto industry also faced short term headwinds after the BS-III verdict of Supreme Court in Q4 FY17.
 Passenger Vehicles: Passenger vehicles posted strong domestic sales during the year with new launches and prediction of normal monsoon in FY18.
 Two – three wheelers: Domestic market saw a downward trend in sales during the quarter while export sales grew but at a slower rate. In domestic markets, as most of the demand comes from tier II and tier III cities, where most transactions happen on a cash basis, the sales took a hit and declined during the Q3 and Q4 FY17. With ban on sale of BS III vehicles, players offered heavy discounts in the last week of March 2017 to clear the inventory compromising the profits. However, the auto industry is showing signs of recovery post the demonetization drive and the BS-III vehicle ban that affected the industry.
 Household & personal products: The demand for the industry being non-discretionary, the industry witnessed positive growth in the sales during the year, however, at a slower rate. Despite discounts and schemes offered by various players to maintain the volume sold, the cumulative profits of the players grew by over 10% during the year.
 Steel & iron: Steel industry registered a sharp rise in domestic sales during the year with the import duty imposition on steel on back of higher government spending on infrastructure along with improved demand from industries such as auto, consumer durables etc. Also, there was a surge in exports during the year. Out of the companies that declared results, top 5 players (accounting for over 90% of the sample) have registered a cumulative sales growth of about 24% y-o-y FY17.
 Textiles: Textiles demand during the year improved and players registered a sales growth of about 7% y-o-y vis-à-vis a growth rate of about 3% in the FY16. However, with oversupply of cotton and fluctuating crude oil prices, players net profits declined by about 3% y-o-y.
 Sugar: Sugar industry witnessed a double digit growth in net sales during the year. Also, net margins of players improved in FY17 mainly led by higher sugar prices during the year. The sector is aided by Central and State Government’s rational policies, to ensure sustainability of the Industry and the farmer.
 Retailing: Net sales saw a sharp decline of about 15% as demand remained weak. However, companies posted double-digit profits in FY17.
 Paints: The industry was impacted by the price decrease as well as demand for core protective coating products being affected by low infrastructure spends by consumers.  

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