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Nov 18, 2011, 03.05 PM IST
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 crawl over into the positive zone
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
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.
A comparative study of earnings of the BSE-Sensex companies reveals that DLF , Sterlite Industries and 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.
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 and Hindalco 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!
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.
% Chg 7053% 2672% 914% 806% 282% 200% 194% 192% 133% 104% 97%
Source: Capitaline, All figures Rs in Cr
Disclaimer: The above analysis is purely intended to reveal interesting statistics. Moneycontrol sources all price information from BSE/NSE and company information from Dion Solutions. Moneycontrol is not responsible for inaccuracy/non-updation of data. There is no intention whatsoever to arrive at any conclusion or recommend any stocks or sectors. Please consult your financial advisor before taking any investing decisions.
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