Q2 Review: The Best And Worst Margin Performance In Second Quarter

BloombergQuint analysed operating performance of the companies in the broader market during three months ended September. Here’s a list of the best and worst five performers.

Selection Criteria

• Companies with a market capitalisation of at least Rs 1,000 crore.
• Banking, financial services and insurance firms were excluded.
• Companies were ranked based on the highest year-on-year increase or decrease in operating margin.

ITI

The state-owned telecommunications equipment manufacturer’s revenue grew led by government grant for capital expenditure. Low cost of materials and lower other expenses aided the operational numbers. Other expenses declined by 77 percent year-on-year to Rs 22 crore, while raw material cost-to-sales ratio fell 500 basis points to 70 percent. The company told BloombergQuint that it’s expecting a 300 percent jump in revenue in the second half of the ongoing financial year on the back of a rise in order execution.

Indiabulls Real Estate

Indiabulls Real Estate Ltd.’s operating margin jumped in the second quarter due to impairment in cost of land to the tune of Rs 135 crore and gain on sale of Rs 780 crore recognised by selling the company’s stake in two of its arms. The realty firm’s board of directors have also approved the proposal of buyback of up to 5 crore equity shares at Rs 100 apiece. The company said it will focus on an asset-light model through joint venture development with landowners and developers without incurring significant upfront land acquisition cost, as per its exchange filings.

Dish TV

The direct-to-home operator’s margin expanded in the second quarter as operating expenses fell around 75 percent to Rs 193.5 crore year-on-year. The company is expected to generate Rs 3,700 crore worth of operating cash flow over financial years 2020-22 which will be sufficient to meet capex requirements of Rs 2,100 crore and repay most of Rs 1,900 crore of debt, Axis Capital said in a report.

Anant Raj

Margin of the North India-based construction firm expanded in the second quarter after its cost of sales fell 14 percent year-on-year to Rs 56.8 crore. The company’s revenue grew 38 percent over the previous year to Rs 142.8 crore in the three-month period due to higher sales realisation in its mid-income housing schemes. The company, according to an exchange filing, had signed a joint venture with Birla Estates Pvt. Ltd. according to which it will invest Rs 380 crore for developing two residential projects in Gurugram.

Multi Commodity Exchange of India

India’s largest commodity exchange operational performance improved as volatility in commodity prices and gold prices rose to life-time highs. The exchange’s Ebitda doubled to Rs 47.3 crore on a yearly basis, Motilal Oswal Research said in a report, while the average daily turnover traded in commodity futures rose 40 percent year-on-year to Rs 34,526 crore. The company’s monopolistic market share has remained intact and competition concerns have reversed due to optimism largely driven by growth in bullion volumes.

Here are the five companies that fared the worst in terms of operational performance:

Zydus Wellness

Despite its operating revenue increasing by almost 2.4 times to Rs 326 crore, the Glucon-D maker’s margin contracted sharply due to higher raw material costs. Its raw material-to-sales ratio rose by more than 1,000 basis points to 43 percent on a yearly basis. The numbers aren’t comparable as this quarter has also reported the numbers of Heinz Group’s Indian arm, with which the company had entered into definitive agreement on Oct. 24. Zydus Wellness Ltd. had acquired Heinz India in January.

Natco Pharma

Operating margin of the drugmaker—which develops finished-dosage formulations and active pharma ingredients—declined sharply due to higher raw material costs. The raw material-to-sales ratio increased more than 700 basis points to 24.5 percent in the second quarter. The company said it’s expanding into niche agro-chemical businesses. Weak operational numbers were led by a dip in domestic sales and inventory stocking of gTamiflu. Anand Rathi revised down the drugmaker’s expected earnings per share for the ongoing fiscal to 15 percent due to the “weak quarterly results”. The company, however, said that the sales of anti-cancer drugs will increase in the third quarter for FY20.

Intellect Design Arena

The financial technology company’s margin contracted as employee expenses rose by 3 percent to Rs 218.7 crore while its operating revenue fell more than 1,400 basis points to Rs 326.5 crore. Gross margin, too, fell by 400 basis points to 45.32 percent due to a one-time employee stock ownership plan cost of Rs 4 crore, and higher research and engineering expenses which rose by almost 50 percent year-on-year to Rs 32.3 crore. The company said it has concluded two multi-million deals during the quarter.

KIOCL

The government-owned iron ore mining company’s operating numbers were impacted due to a rise in raw material costs. The raw material cost-to-sales ratio increased by more than 1,200 basis points to 74.4 percent. MV Subba Rao, chairman and managing director of the company, said profitability was impacted due to a severe drop in global steel and pellet prices. Pellet segment revenue, too, fell 16 percent year-on-year to Rs 346.9 crore. The company said it’s actively carrying out mineral exploration in Karnataka and exploring new markets for sale of pellets.

International Paper APPM

The company’s operational numbers were impacted by higher pulp prices. Its raw material cost-to-sales ratio rose by more than 400 basis points to 50.8 percent and employee expenses rose 18 percent year-on-year to Rs 43.9 crore. The paper producer’s revenue contracted 19 percent to Rs 271.8 crore. On Oct. 30, International Paper Company, the holding company of its Indian arm, completed the sale of its controlling interest to Kolkata-based West Coast Paper Mills Ltd. for about $85 million, according to Bloomberg.

(The factors impacting margins have been compiled from exchange filings and brokerage reports)