Interest costs dent net profit growth, rural woes adds to volume pressure
If the results of the early birds are any indication of the final shape of things to come, Indian companies’ June-quarter earnings could be worse than in the previous three-month period.
Growth in reported net profit of the 215 companies that have announced their results so far (excluding banking and financial services ones) has been five per cent over a year ago, compared with 12 per cent in the March quarter.
The reason is believed to be a 19 per cent increase in interest cost.
For some heavyweights like Reliance Industries, Idea Cellular and Gas Authority of India Ltd, interest costs have risen between 50 per cent and 84 per cent.
Even for the 14 companies of the 50 on the National Stock Exchange’s Nifty (excluding banking and financial ones), net profit growth of 4.2 per cent has been below Bloomberg’s consensus estimate.
Against the Rs 23,669-crore (Rs 236.69-billion) combined net profit estimated by Bloomberg for these companies, the number has been Rs 23,334 crore (Rs 233.34 billion) -- about 1.4 per cent lower.
Of the total 17 Nifty companies that have declared their results so far (including banks and financial firms), net profit of nine has exceeded estimates.
However, the gap between the actual and expected net profit of the other eight that have fallen short has been wider than the difference for those that have beaten estimates.
The profit underperformance vis-à-vis estimates of Nifty companies and the net profit decline over the March quarter for the broader market come despite higher sales growth and improved margins for both Nifty and the broader set of companies.
Sales of Nifty ones beat the Bloomberg estimates by over three per cent.
Nifty companies’ net sales have contracted 12.32 per cent, while those of the broader sample have fallen 7.16 per cent -- these are better than in the March quarter. Topline growth was led by the IT companies (TCS, Wipro, Infosys), Idea Cellular, Hindustan Zinc, Zee Entertainment and Eicher Motors.
Growth on the operating profit front was led by oil & gas firms (Reliance Industries, Cairn India), automobiles companies (Bajaj Auto, Eicher) and telecom service/infra providers (Idea Cellular, Bharti Infratel).
However, market experts are not too optimistic. Ravi Shenoy, assistant vice-president (mid caps) at Motilal Oswal Securities, says automobile players (Eicher, TVS, Bajaj Auto) have disappointed on the volumes front.
For infrastructure and related sectors, things could turn around as some of the awarded projects get going.
Most experts believe financials will improve in the second half of the current financial year.
Kunj Bansal, chief investment officer, Centrum Wealth Management, expects positive traction in road infra, led by good order flows, execution and traffic movement.
In the financial space, while HDFC Bank and Axis Bank reported in-line numbers, the outlier was IndusInd Bank. What is worrying, according to Bodke , is the asset-quality concern for smaller banks like South Indian Bank and DCB Bank.
On the positive side, home finance companies like Gruh Finance, LIC Housing, GIC Housing and DHFL have shown good performance, bucking the trend of a slowdown in real estate.
Bansal says first-time home buyers are still seeking home loans, while there is a slowdown in real estate as investment-related demand has suffered.
The only silver lining from the early birds is that on a sequential basis and given that the previous quarter was a bit of a dampener, across parameters, the performance of companies has been much stronger.
So, it might perhaps be an early indication that earnings are bottoming out.
However, given that the latter part of the earnings season is usually disappointing, this theory will be put to test.
The image is used for representational purpose only; Photograph: Reuters
