Q2 earnings review: India Inc on road to recovery

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Q2 earnings review: India Inc on road to recovery

The earnings season has officially come to an end and a CNBC-TV18 research shows that India Inc may well be on the road to recovery. CNBC-TV18’s Haresh Soneji reviews the Q2FY10 earnings.

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The earnings season has officially come to an end and a CNBC-TV18 research shows that India Inc may well be on the road to recovery. CNBC-TV18's Haresh Soneji reviews the Q2FY10 earnings.

Below is a verbatim transcript of Haresh Soneji's comments on CNBC-TV18. Also watch the accompanying video.

This time around earnings from India Inc has been really good. The best thing to happen for India Inc is that the volume growth is finally picking up.

We have to look both on year-on-year (YoY) basis and also quarter-on-quarter (QoQ) basis which will give a proper gauge of how these numbers are stacking up.

Net sales:

Net sales on YoY basis may be up just 1% but on QoQ basis it is up 7% which clearly shows the discounts and other freebies offered by India Inc is finally picking up. Volume growth is happening which is one good sign for India Inc. Other income is up about 10% but on QoQ basis it is moving down gradually, which is also good sign. Forex and other financial attritions have been left aside and the focus is purely on the business side.

Inventories:

It has moved down 61% but on QoQ basis inventories are looking up maybe that was preparation for festive season which happened in October, so nothing to worry on that front.

Material costs:

Material costs are down 3.5% on YoY basis but on QoQ basis it is up about 8% which shows inventory pile up which was there on the India Inc for previous few quarters is now moving down slowly and India Inc is setting up fresh inventories

Interest expense:

It is up YoY basis but on QoQ basis it is 9%, which shows that the focus is on manufacturing and India Inc is going for working capital lows. That is why inventory is showing that.

Profit After Tax (PAT):
PAT is up 11.4% (YoY) for 1952 companies which we analyzed ex-oil, financial and trading companies and on sequential basis up about 7% and adjusted for other income. The PAT also looks decently up 11.5% and on sequential basis it is up 18%.

Operating Profit Margins (OPM):

OPM is at 22.3% similar to the previous quarter and NPM is at about 11% which is again similar to previous quarter that is where overall numbers are concerned.

Sensex PAT is up about 5.7%, and on QoQ basis, it is up 1% which is not bad either. So on that EPS currently stands for Sensex at about Rs 770 per share and a Price to Earnings ration of about 20.7 times. But that is not what we look at, the expected PAT growth because of the base effect for the next two quarters is expected to be 10% up for each quarter. This will take the Sensex EPS for FY10 close to about Rs 930 per share. Thus, the market is currently trading only at about 17 times FY10 expected earnings. With so much liquidity in the markets that is not too bad either.