Sectors That Stood Out Or Failed To Impress In Q2

Of the 500 BSE constituents, 462 companies that have reported results so far saw their aggregate sales revenue rise 29% over the preceding three months, according to data compiled from Bloomberg. On a year-on-year basis, the cumulative top line, however, declined 0.46%. Excluding banking, finance, and insurers, the sales revenue dropped 4.7% over the year earlier.

Aggregate net profit of the 462 companies, however, jumped both year-on-year and over the preceding quarter, mainly helped by a reduction in losses of telecom companies and growth in earnings of oil marketers on large inventory gains.

Operating profit of the cohort, excluding banking and finance, too, rose sequentially and over the year-earlier on account of effective cost management, benign raw material or input prices, and a significant drop in advertising and promotions. The average Ebitda margin of the universe (excluding banking and finance) stood at 20.2% in the July-September period. Of the 416 companies, that are excluding banking and finance, 187 have reported margin higher than the average in the reported quarter.

The sectors that stood out or lagged in the second quarter in terms of revenue, profit, operating income and Ebitda margin...

Top-Line Tale

Diversified chemicals, banks, finance, and defence are among the sectors that witnessed the biggest year-on-year rise in revenue during the September quarter. While good monsoon and the government’s focus on the agricultural sector aided the diversified chemical makers, a ban on imported arms under the Atmanirbhar Bharat (self-sufficient India) initiative supported defence companies.

For banking and finance companies, a better-than-expected loan growth, recovery in fees and cost cuts worked. “There was a notable improvement in management commentary compared to the preceding earnings season due to minimal requests received for restructuring, unlock measures, and buoyancy in the rural economy,” Yes Securities said in a note.

On the other hand, hotels, department stores, and real estate, among others, witnessed the worst decline in sales over the year earlier. Hotels were severely impacted as they remained mostly non-operational after the coronavirus outbreak ravaged travel and tourism. A reduction in footfalls during the pandemic also impacted the performance of departmental stores, while the lack of demand in the affordable segment and increased inventory levels hurt developers.

Profit Path

Banks reported the highest year-on-year rise in net profit during the July-September period, followed by construction, engineering and fertiliser sectors. While construction engineering companies benefited from decent order inflows from roads, railways, irrigation, and mining, fertiliser makers were aided by a good monsoon season and the government’s thrust to improve farm incomes.

Ebitda Equation

Tyremakers are among the top five sectors that saw the highest jump in earnings before interest, tax, depreciation and amortisation, helped by a faster-than-expected recovery in the domestic market and increase in replacement demand.

The logistics sector is gradually reviving as the economy opens up and business activities resume. The growth in operating profit for the chemical sector was fueled by a reduction in raw material costs and other operating expenses.

On the other hand, the publishing (print media) houses are among the sectors that witnessed the worst year-on-year decline in Ebitda during the second quarter. That was mainly because of a fall in advertising income during the pandemic. The textile sector’s operating profit fell as work from home amid Covid-19 hurt demand domestic and international demand for fabric wear.

Margin Math

Sectors such as power, marine ports, tobacco and electric utilities posted the biggest expansion in operating margin during the reported quarter. Adani Ports and Special Economic Zones Ltd. reported the highest Ebitda margin of 63% among peers, helped by cost cuts and optimum resource utilisation. In the power sector, Power Grid Corp. posted the highest margin of 88%, followed by Adani Transmission Ltd.’s 44%.

Hotels and department stores are the only two sectors that witnessed a contraction in operating margin.