Earnings Report Card: See how India Inc fared in Q2

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

Rupee at 51: Will Asia’s worst currency continue falling?

What a volatile week it has been for the rupee. The partially convertible currency hit 51 against the dollar early on Friday, after closing at around 50.90 per dollar on Thursday.

It’s a 33-month low for the currency and the consensus is that the rupee will keep sliding for a while due to a combination of unfavourable global and local factors.

One of the most pessimistic predictions issued yesterday was by Laurence Balanco,technical analyst at CLSA. He told CNBC TV-18 the rupee could dive all the way to 58 against the dollar if it fell to the 52 mark.

While that might seem a little extreme, the fact is most experts believe the rupee’s slide is set to continue, at least in the medium term.

That the rupee is falling against the dollar is no surprise. Reuters

According to The Wall Street Journal, the Indian rupee is the world’s third-worst performing currency this year, falling by nearly 14 percent , next only to the Turkish lira, which is down 17 percent and the Kenyan shilling, which has lost 15 percent. It is also Asia’s worst-performing currency, the newspaper added.

What’s happening to the rupee?

The reasons for the rupee’s slide are not difficult to understand.

One, the never-ending sovereign debt travails of the eurozone continue to keep global investors on edge, who, as a result, continue to pull money out of relatively riskier emerging market assets and dive into safe havens like the US dollar. Indeed, some experts have said there is an increasing scarcity of dollars in the currency markets, given that everyone is scrambling to play it safe.

Two, a slowdown in the local economy, coupled with high inflation, is muting the prospects of corporate earnings, which is putting off foreign investors. Higher demand for local assets typically boosts demand for the local currency and thereby leads to the currency’s appreciation.

Foreign investors have only bought $663 million worth of Indian equities this year, sharply down from the $29 billion they invested in 2010, according to data from the Securities and Exchange Board. Not surprisingly, the benchmark Sensex is also down 20 percent this year. Capping the bad mood was Shankar Acharya, former chief economic advisor to the government, warned the economy could expand below 7 percent in the year ending March 2012. Other economists believe growth could be between 7-8 percent.

Three, India remains a net importer of foreign goods, and a third of that consists of oil imports. According to TV reports, oil companies import about $6 billion worth of crude every month.

A falling rupee will increase the cost of imports (in local currency terms), which increases the current account deficit, which is the trade deficit plus interest payments and other transfers. The trade deficit is the difference between exports and imports.

The current account deficit can be funded either through foreign direct investments or foreign portfolio investments (in equity/debt markets). But as we all know, foreign investments in local assets such as stocks have been low. Meanwhile, the current account gap continues to widen, which worries investors.

Four, with foreign currency reserves of $311 billion (at the end of September) and imports worth about $35 billion for the month, India now has the lowest import cover of 8-9 months. This is the lowest in the last decade, according to an opinion piece in Business Line. That worries investors because with the increasing cost of oil imports, there will be further demand for the dollar, which should drive down the value of the rupee further.

Five, hopes that the Reserve Bank of India (RBI) will intervene in the foreign exchange market to boost the rupee have dimmed after Deputy Governor Subir Gokarn said earlier this week that the central bank did not plan on changing its policy of intervening in foreign-exchange markets only in times of excessive volatility. That means investors can’t expect the RBI to swoop in and lift the rupee every time it hits a new low against the dollar.

All things considered, expect the rupee to keep going downhill for a while.

Source: Firstpost.com

Thanks,

Neha K. Mehta

DENIP Consultants Pvt. Ltd.