Cost control saved the day for India Inc in Q1

Mumbai: The healthcare and technology sectors stood out in the first quarter (Q1) of FY 20-21 while aggregate performance decline was largely led by the automobiles, metals and capital goods sectors.

Healthcare had a spectacular quarter due to strong revenue and better operating leverage, sharp margin improvement due to cost savings. US market performance impacted overall profits of select companies.

Among the IT companies, Q1 performance led to upgrades for most companies.

The brokerage firlm Motilal Oswal said in its Q1 FY21 result review, "Q1 FY21 corporate earnings came in above our muted expectations. Cost control and cash preservation were effectively deployed as tools to offset the headwinds from lockdown-induced volume declines, Just 6 per cent EBITDA decline in the Nifty 50 companies despite 30 per cent revenue decline happened on account of the ability of India Inc. to drive cost control when needed."

Gautam Duggad, a research analyst with Motilal Oswal, said healthcare companies had a spectacular run this quarter with profit before tax/profit after tax registering growth of 29 per cent and 27 per cent year on year (yoy) versus our estimated decline of 6 per cent/5 per cent yoy.”

“This was largely led by significant cost savings in the domestic formulation segment and market share gains by API companies. However, the benefit was offset to some extent by subdued performance in the US,” Duggad said.

Healthcare and Technology earnings stood out – both in absolute and relative terms – and we expect these sectors to show continued strength ahead, Duggad said.

Aggregate US sales of pharma companies declined 8.3 per cent yoy in Q1FY21. Sharp reduction in Taro sales resulted in 34 per cent yoy decline in US sales for Sun Pharma.

“As the lockdown eases, marketing spends in the domestic formulations segment is expected to gradually increase. However, the pandemic has led companies to re-evaluate their cost savings initiatives due to increased use of the digital medium. Thus, we expect structural improvement in profitability versus pre-COVID levels in the domestic formulations segment,” the review said.

“With inclination to buy from Chinese suppliers reducing, we expect better growth prospects for the API business. The reduced international travel is also expected to keep regulatory risk under check for companies, which have sites under compliance. Overall, outlook for the pharma sector remains positive over the medium term,” the review said.

Another trend observed in Q1FY21 was rural India outperforming urban clusters in all sectors.

Financials, telecom, oil and gas and healthcare should contribute to the incremental growth in Nifty profits in FY21. On the other hand, Autos, capital goods, cement, Metals and Utilities sectors are expected to drag, the review said.