InvestorQ : What are the key takeaways from the third quarter results declared so far? Do you see growth coming back and what is driving profits of companies?
Rutuja Nigam made post

What are the key takeaways from the third quarter results declared so far? Do you see growth coming back and what is driving profits of companies?

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5 months ago
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The Q3 results may not be done and dusted and there are more companies to go. But if you look at in terms of market cap, then bulk of the market cap is certainly covered already by the middle of February. Most of the really critical companies in the various indices have given out their numbers. In terms of numbers, of the NSE 500 index stocks, nearly 470 have already announced their Q3 results. Two positives have surely emerged.

The first positive pertains to a fall in the interest cost almost across the board, but this is the most prominent in the banking sector. Clearly interest costs played a role in boosting profits in the Dec-20 quarter. Lower interest costs have been an outcome of lower repo rates and abundant liquidity in the system. The last one year has seen rates falling sharply and yields also falling in tandem.

The levers have been smoothened by good liquidity in the system. As a result, the transmission of rate cuts to the end borrower has been amazingly smooth. That led to the cut in cost of debt to Indian companies. In addition, many of the profitable Indian companies have gone ahead and consciously cut down on their debt to reduce solvency risk in uncertain times. That also brought down interest costs and improved coverage ratios.

The second big story is on costs and working capital being smartly tweaked. Most of the manufacturing and services companies engaged in aggressive cost cutting during the pandemic. That kind of frugality has continued which is a good signal. This could range from renegotiating rental deals to seeking moratorium on rental payments to a sharp cut in employee costs. In short various measures have been deployed to cut costs in these times.

One can also perceive a clear reduction in the miscellaneous cost component in the income statement. That has also been instrumental in boosting profits in a big way but there has been another critical trend. Most Indian companies reduced their debtor days and also their inventory to near-JIT or just-in-time levels. Funds trapped in inefficient working capital cycles have been released. That was instrumental in sharply cutting down on costs.

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