Listed firms deliver highest ever earnings in March quarter on resurgent economy

• Earnings record whopping 207% surge in after-tax profits to Rs.107.42bn
• Previous highest was Rs.85bn reported for the quarter ended December 2020
• Currency depreciation also contributes to higher earnings during March quarter 

Listed corporates delivered their best ever earnings for the quarter ended March 2021 as the companies benefitted from the resurgent economy due to easing of restrictions, and exports grew at a robust pace, lifting multiple sectors barring a few such as leisure.  

The listed entities logged a phenomenal 206.9 percent surge in their after-tax profits for the January-March quarter this year compared to the same three months in 2020, the earnings data compiled by First Capital Research (FCR) showed.

Although FCR didn’t provide the March 2021 quarter earnings in absolute terms, the 206.9 percent growth works out to a whopping Rs.107.42 billion in cumulative earnings in that quarter, compared to Rs.35 billion recorded in the same period in 2020. 

The earnings in the March 2020 quarter were dampened by the economic shutdowns, which resulted from countrywide lockdowns imposed from around mid March that year to contain COVID-19 which struck Sri Lanka and the world for the first time, expanding into a pandemic.

The previous highest was Rs.85 billion in cumulative earnings reported by listed entities for the quarter ended December 2020, logging 33 percent increase from the same period in 2019.   

Even prior to the beginning of March quarter earnings season this year, Mirror Business predicted a sharp increase in the corporate earnings in the first three months of 2021 as seen from the burst of economic activity and the bustling consumer demand for almost every commodity from consumer staples to durables to other outdoor activities such as taking excursions with family and friends, dining out etc.

According to FCR, the March 2021 earnings had largely been driven by strong earnings in food, beverage and tobacco sector, material sector, transportation sector and the capital goods sectors, which had their earnings up by exponential levels.

However, the biggest contributor to earnings in any period remains the banking, finance and insurance sector as banks, in particular saw their lending books expanding at a satisfactory level while improving their asset quality, reflecting better economic conditions until the fresh restrictions came about from the third week of April 2021. 

“Margin expansions led by hefty price increases and lower finance costs have been the primary cause for earnings growth across the board, amidst the lower competition resulting from import restrictions” FCR noted. 

Mirror Business repeatedly showed the rising prices in the economy as a result of pass through effects from higher supplier prices in February and March this year.

Pent-up demand, which often follows the periods of restrictions on consumer activity also leads to higher prices as businesses scramble to meet the sudden spike in demand resulting in strains on their supply chains and thereby leading to higher prices.  

Periods of lockdowns anyway are followed by higher prices because businesses raise prices to partly make up for their lost sales during restrictions to their businesses, as they tend to typically pass on that effect to the end consumer.

Meanwhile, another factor cited by FCR for the solid earnings season in March was the currency depreciation, as the companies with dollar incomes and foreign assets converted such to higher rupee incomes and gains, resulting in higher bottom-lines in rupee terms.