Weak demand, keen competition hit earnings in Q3

As the headline numbers show, it has been a disastrous earnings season, leaving India Inc in deep distress. Profits for a universe of 1,995 companies fell 30% y-o-y in the December 2018 quarter although revenues were up a decent 19% y-o-y. The simple fact is raw material costs and other expenses remain elevated but not too many companies are able to pass these on to consumers or end users because demand is so muted and the competition intense. The shortage of liquidity since September appears to have pushed up the cost of finance hurting the demand for consumer durables, while subdued investments in projects by the private sector and sluggish construction have left the demand for materials such as cement weak.

The telecom sector, in particular, has been badly bruised by the heightened competition after Reliance Jio entered the market in September 2016. But even rivals Bajaj Auto and Hero MotoCorp have been compelled to get into a price war to protect market share. The abundance of capacity in the cement sector, at a time when there is little activity in real estate, has left realisations of players like Ultratech weak.