Moneycontrol Pro Panorama | No surprises in June quarter earnings

The market has consolidated since the peak of the earnings season.

Dear Reader,

The June quarter earnings season has ended, and most companies in the BSE500 have announced their results within the statutory 45-day period. Although the broad indices reached a new high in mid-July 2023, during the peak of the earnings season, the results are generally muted.

An analysis of 345 companies out of BSE500 by IIFL shows that financials and commodities drove profit growth in the first quarter of the current fiscal. Besides these sectors, other companies posted a -5 percent QoQ (quarter-on-quarter) contraction at the PAT level.

Overall, cumulative sales of the 345 companies grew by 2 percent and net profit at 59 percent, thanks to a 31 percent increase in operating profit (EBIDTA). Nifty 50 stocks saw a profit growth of 8 percent on a QoQ basis.

With most of the results in line with market expectations, only 1.4 percent of the companies tracked saw an upgrade during the quarter. No surprises then that the market has consolidated since the peak of the earnings season.

The quarter's highlight was a strong EBIDTA growth on a YoY (year-on-year) basis, with automobile companies operating profit growing by 121 percent, travel stocks by 100 percent, tyres by 69 percent and paints by 36 percent. A fall in commodity prices, especially steel and oil, helped these sectors post strong numbers.

PSU Banks continued to grow in strength with a 130 percent jump in YoY profits, led by a 3x jump in SBI. Profits of telecom companies rose by 90 percent and upstream oil and gas companies by 73 percent.

IT firms had a mixed performance, with bigger companies posting muted results, high attrition and conservative guidance, but the smaller ones posting solid numbers and displaying optimism with their guidance for the remaining part of the year.

Capital goods players also registered in-line numbers, but were optimistic, given their strong order books.

FMCG companies had an interesting quarter with volume growth of only 3 percent YoY among the top players, but a double-digit operating profit growth, thanks to a fall in raw material prices. The frontline companies, however, had to take price cuts due to competition from smaller players and increase their ad spending to maintain market share.

The worrying sign is the impact of inflation which is visible in the performance of consumer discretionary companies. Sales per store were mostly flat to negative, with Westlife posting the best performance of a 7 percent same-store sales growth (SSSG). High milk and vegetable prices affected sales and margin growth. D-mart reported a weak quarter with lower sales per store and losing market share in the merchandise and apparel category to value fashion chains opened by Trent and Reliance.

Analysts have discounted the June quarter results, but interactions between management and analysts provide a glimpse of future expectations. Considering the influence of inflation and shifting global dynamics, analysts predict that Indian companies will sustain the same growth rate in the next three quarters of the current fiscal.

With 41 percent of districts reporting deficient to largely deficient rainfall, food inflation is likely to continue over the next few months. Unless we see stronger growth, markets will have a tough time rising.

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Shishir Asthana Moneycontrol Pro