Moneycontrol Bureau
The sun is about to set for the earnings season of the second quarter and it does seem like a quarter that India Inc would like to speedily forget. Most of the companies have missed street expectations and only a handful has managed to surprise the market.
Moneycontrol.com reviews the second quarter performance of Corporate India and its reflection upon the market in an attempt to determine the way forward for our market. Here is our assessment:
This earnings season turned out to be more of a sentiment dampener for investors. Elevated interest costs, rupee depreciation and soaring fuel prices eroded profits, and in some cases, even pushed bottomline deeper into the pits. Study of 3022 companies show that operating profit margins and net profit margins have shrunken by 442 and 527 basis points respectively, in this quarter, against the same period the previous year. Note that net profit margins are in single digits for this quarter.
Check out the chart given below. All figures are standalone figures and Rs in crore.
Summation of quarterly result of 3055 companies
| Criteria | Sep-11 | Sep-10 | % Chg | Despite high inflation, companies managed to push products through, registering an overall growth in sales by 20.60% on a year-on-year basis. However, bottomline saw a degrowth of 35%, the first time in four quarters, indicating slowdown of India's growth engine. The biggest worry however was interest cost which stands at whopping 48% now. Also note that other income has jumped to 21%, the highest in four quarters. | |
| Sales | 1092627 | 906010 | 21% | ||
| Other Income | 36099 | 30011 | 20% | ||
| Gross Profit | 261176 | 256588 | 2% | ||
| Depreciation | 30917 | 29023 | 7% | ||
| Interest | 133730 | 90544 | 48% | ||
| Tax | 30406 | 34419 | -12% | ||
| Net Profit | 66123 | 102602 | -36% | ||
| OPM | 23.9 | 28.32 | (442bps) | ||
| NPM | 6.05 | 11.32 | (527bps) | ||
Stocks however remained range-bound and volatile, reacting to individual results blow-by-blow. Ironically, Nifty is back to trading at the same level at close to the 5000 mark where it was when the earnings season was kicked off by IT bellwether Infosys . Over the season, the benchmark index rallied close to 6% before losing steam and backing out to 5000 points.
Index outperformers
A comparative study of earnings of the BSE-Sensex companies reveals that DLF , Sterlite Industriesand Jindal Steel were volume toppers this quarter while DLF, TCS and ONGC were PAT toppers. What is interesting is that there are only three companies in the entire universe which have recorded 10% growth sequentially, both in sales and profits, in past three quarters. They are Pitti Laminations ,NHPC and Steelcast .
Check out the table below for the outperformers from each sector on the basis of sales growth and PAT growth. The companies mentioned under ‘interest’ are least leveraged, therefore are debt-free companies, which means they do not have an impending interest amount to pay. Note that IndusInd Bank , Petronet LNG , Praj Industries , HCL Tech , TCS and Lupin have recorded highest sales growth as well as PAT growth from their respective sectors.
| Sector | Sales | PAT | Interest |
| Auto | Apollo Tyres | Bharat Forge | Cummins India |
| Banks | IndusInd Bank | IndusInd Bank | - |
| Metal | Sterlite Industries | Hindustan Zinc/NMDC | Nalco/NMDC |
| Oil&Gas | Petronet LNG | Petronet LNG | Oil India |
| Capital Goods | Praj Industries | Praj Industries | Alstom/LMW/Praj |
| IT | HCL Tech | TCS | Infy/OFSS |
| Consumer Durables | Gitanjali Gems | TTK Prestige | Titan/VIP/Whirlpool |
| Telecom | Bharti Airtel | Tata Comm | Rel Comm |
| Realty | Godrej Properties | Oberoi Realty | Oberoi Realty |
| Power | Adani Power | Reliance Infra | Crompton/Thermax |
| Pharma | Lupin | Lupin | Biocon/Divis Lab |
| FMCG | Marico | United Spirits | HUL/Colgate/Nestle |
Index Laggards
We ran a similar analysis to pick out the backbenchers in sales and PAT growth. Thankfully, only two stocks- SKS Microfinance and Resurgere Mines - seem to have reported a 10% sequential drop in sales and profits over the past three quarters.
With the Manesar issue affecting production, Maruti Suzuki was badly affected in terms of sales in this quarter pitched against the same period previous year, closely followed by JP Associates andHindalco Industries . Maruti also topped charts on companies with least profit growth on a yearly basis. Bharti Airtel and Sterlite Industries came out the other index laggards with regard to PAT. Note that Sterlite had clocked maximum sales growth during the quarter.
Below is the table of sectoral underperformers. Like Maruti, Sesa Goa and Tech Mahindra too seem to have lagged with regard to sales and PAT growth in the respective sectors. Watch out for companies with huge interest outlay in their balance sheet!
| Sector | Sales | PAT | Interest |
| Auto | Maruti Suzuki | Maruti Suzuki | Ashok Leyland |
| Banks | IDBI Bank | Bank of India | - |
| Metal | Sesa Goa | Sesa Goa | Sterlite Industries |
| Oil&Gas | IOC | Essar Oil/OMCs | IOC |
| Capital Goods | BGR Energy | Usha Martin | Punj Lloyd |
| IT | Tech Mahindra | Tech Mahindra | Wipro |
| Consumer Durables | Blue Star | TTK Prestige | Blue Star |
| Telecom | Reliance Comm | Idea Cellular | Idea/Bharti |
| Realty | DB Realty | Indiabulls Real Estate | Indiabulls Real |
| Power | GVK Power | JSW Energy | Reliance Power |
| Pharma | Piramal Healthcare | Strides Arcolab | Ranbaxy Labs |
| FMCG | Dabur India | United Breweries | United Spirits |
Interest cost burden: Too heavy to handle
In its war against inflation, RBI had no choice but to hike interest rates repeatedly. In fact, interest rates have been pushed up by nearly 525 basis points in 13 steps over past the few quarters. This has weighed heavy on India Inc, by not only dampening investor sentiment, but also by having to bear additional cost in the form of interest burden to be paid on loans taken by Corporate India. Check the table we have compiled to get an idea of the interest cost burden on company books.
| Company | Sep-11 | Sep-10 | % Chg | A shocking 15 companies figure in the list of businesses where interest cost has burgeoned by over 100% in this quarter compared with same period last year. Keep an eye on the bad boys- Sterlite Industries, Ranbaxy Labs, GTL, GE Shipping, Idea Cellular- cost of interest is up over 200% for them! The new additions are Bharti Airtel, Aurobindo Pharma, Ipca Labs and Wipro. | |
| Sterlite Inds. | 288.25 | 4.03 | 7053% | ||
| Ranbaxy Labs. | 265.24 | 9.57 | 2672% | ||
| GTL | 126.25 | 12.45 | 914% | ||
| GE Shipping Co | 92.15 | 10.17 | 806% | ||
| Idea Cellular | 253.84 | 66.48 | 282% | ||
| Bhushan Steel | 301.95 | 100.55 | 200% | ||
| Adani Power | 133.64 | 45.49 | 194% | ||
| I O C L | 1484 | 507.91 | 192% | ||
| REI Agro | 125.15 | 53.75 | 133% | ||
| Bharati Shipyard | 129.39 | 63.4 | 104% | ||
| JP Power Ven. | 220.07 | 111.75 | 97% | ||
| Bharti Airtel | 594.6 | -79.4 | |||
| Aurobindo Pharma | 167.36 | -47.8 | |||
| Ipca Labs. | 38.91 | -20.68 | |||
| Wipro | 229.8 | -1.6 | |||
Source: Capitaline
Thanks & Regards;
Neha Mehta
DENIP Consultants Pvt Ltd
Relationship Manager
022-40156688/99/90/92 | info@denip.in | www.denip.in | www.denipconsultants.blogspot.com
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