Q2 earnings review: Hits, misses and the road ahead

Published on Thu, Nov 05, 2009 at 12:52 | Updated at Thu, Nov 05, 2009 at 11:56 | Source : Moneycontrol.com

Blish This

The Q2 earnings season has ended, and it has been an optimistic one. A little bit of number crunching paints a rosy picture (see table).

Also Read

News and Notices about Hind Constr
See interviews with Hind Constr Management
See what other Experts & Brokerages are saying about Hind Constr
See previous Results of Hind Constr

RSS feed for news
Click here

Parameter	Up/Down (%)
Net Sales	Up 7% QoQ
Other Income	Up 10% YoY
Inventories	Down 61% YoY
Material costs	Up 8% QoQ
Interest expenses	Up 9% QoQ
Profit After Tax	11.4% YoY
Operating Profit Margins	Flat

(The calculations are made on both year-on-year (YoY) basis and also on quarter-on-quarter (QoQ) basis which will give a proper gauge of how these numbers are stacking up.)

Is it time to cheer already?

No, says Portfolio Manager PN Vijay. “Toplines are flat with strong bottomlines, which means companies are enjoying lower input and interest cost." He feels such kind of earnings will only be cheered in the first 8-10 months of a bull market. "Already commodity prices are going up. Unless this growthless profit is supplemented by a growing profit, we will have to go to profitless growth which is the last stage of a bull market. This has to be backed up in the next few quarters by a strong topline if this growth is to sustain.”

Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Securities, says the earnings season is more or less in line with street expectations except for telecom sector. This quarter was year on year flat. But in the next four quarters we will see big base effect of last year’s low earnings. So the numbers will look very good but valuations are also up.”

Nilesh Shah, Managing Director and Chief Executive Officer of Envision Capital, says earnings on the whole were better than expectations. However, he was quick to add that there is no consistency across sectors. "The dissected numbers may not look that good," Shah cautions.

Sector health check:

This quarter has seen some swings in various sectors. Telecom has taken a hit while IT has done well. Pricing has eaten into telecom while global recovery boosted growth in the IT sector.

Manishi Raychaudhari, Managing Director and Head-Research, BNP Paribas Securities, says banks, automobiles, engineering, and construction have outperformed compared to expectations. "We have seen major disappointments among telecom companies."

The disappointed numbers of property companies seems to have caught N Krishnan, Head of Research - India, CLSA, eye.

However, Ashwini Agarwal of Demeter Advisors says most sectors failed to meet expectations.

Ashwini says it is a mixed bag in sectors, so one needs to look at individual companies. He is surprised by the growth reported by the tech sector, but was quick to add that IT companies will not go back to 25-30% growth levels.

Going forward, Ashwini sees execution concerns for the infrastructure space.

Road ahead not that rosy:

Agarwal feels earnings in the next four quarters will look strong on a low base effect. But all is not good for the big boys. "This year’s margin expansion in a lot of these branded companies is not going to sustain," he cautions. However, Krishnan expects an earnings growth of 5-6% this year. Like Agarwal, Krishnan too sees strong topline growth in H2 on a lower base and sees margins under pressure."

Shah too expects good earnings for the next 1-2 quarters.

Like Agarwal, Krishnan and Ashwini too see strong topline growth in H2 on a lower base. However, Krishnan sees margins under pressure going forward.

On next page read snapshots of some major sectors and how they performed…

1 2

Next page »

Some More on Result Analysis