Q3 FY21 Earnings Review and Sectoral Outlook

India on the cusp of a virtuous growth cycle

* With recovery in macroeconomic activity amidst improving demand scenario, festive season and easing of restrictions, corporate earnings in Q3 FY21 remained strong with most companies beating market estimates.

* Aggregate revenue growth for companies under our coverage recorded a positive growth after five consecutive quarters of contraction with manufacturing sector posting a better performance than services sector.

* Despite rise in commodity prices margins have remained resilient with companies either pushing through higher volumes or passing on the higher cost of input to consumers.

* Continued deleveraging by companies and lower interest rates led overall interest cost to remain muted helping Profit After Tax (PAT) to expand for the second consecutive quarter.

* In line with improvement in performance of India Inc., GDP growth for Q3 FY21 came in at 0.4% YoY vs. -7.3% in Q2 FY21, marking its first positive print after two consecutive quarters of contraction.

* Going forward, with improving domestic economic backdrop, growth enabling FY22 Union Budget, favorable statistical base and COVID vaccine distribution picking up we expect GDP growth to come in at 11.0% in FY22.

* However, risk to growth trajectory cannot be overlooked amidst recent rise in COVID infections in few states leading to region wise lockdowns.

Q3 FY21 Corporate Results : A Quarterly Snapshot

* Aggregate revenue, after contracting for five consecutive quarters, grew by 7.4% YoY in Q3 FY21 from -1.9% YoY in Q2 with manufacturing sector posting a better picture as compared to services sector led by festive season and ‘unlock’ which lead overall demand to pick-up.

* Despite increase in commodity prices agg. operating margins continued to remain healthy at 20.9% YoY in Q3 FY21 vs. 20.2% in Q2 FY21.

* While profit after tax (PAT) on an annualized basis has remained strong, increase in net sales in Q3 FY21 has led PAT margin (PAT/ net sales) to decline marginally, on an agg. basis.

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