Investors are betting big on a quick recovery for the economy — the Sensex surged 310.63 points on Tuesday to close near its lifetime highs — but corporate profits this earnings season have, at best, been a mixed bag. Disappointments so have outnumbered the surprises by a wide margin in the three months to June with the star performers being Tata Consultancy Services (TCS) and Idea Cellular whose net profits jumped 57% year-on-year.
For a clutch of 114 companies (excluding banks and financials), net profits may be up 15.6% y-o-y but this came on the back of a big jump in other income. Indeed, excluding TCS and Infosys, growth in aggregate net profit is just 4.8% y-o-y. Revenues for the sample rose just 11.3% and though the raw material bill as a share of sales was smaller, operating profit margins stayed flat at 15%.
Given how banks have reported a muted increase in loans — adjusting for FCNR deposits, loan growth at HDFC Bank was just 16% y-o-y — it would appear companies are still hesitant to initiate capital expenditure. At HDFC too, loan growth moderated to just 15% y-o-y — loans to individuals came off to 17% y-o-y from 20-24% between Q1 and Q4 FY14, an indication of a slowing economy.
Srinivasan Varadarajan, director, corporate banking, Axis Bank, said after the bank’s results on Tuesday he believed investment and capex would be back-ended towards the latter part of the year. That the core sector remains sluggish is evident from numbers of Reliance Infrastructure, where consolidated revenues were down 24% y-o-y with EPC revenues plummeting 65% y-o-y.
Sales at capital goods manufacturer Thermax were down 2% year-on year while Ebitda margins fell more than 200 basis points to 5.9%.
Heavyweight Reliance Industries turned in a weak operational performance with the reported Ebitda up just 6.4% y-o-y and down 9.6% sequentially, while higher-than-expected raw material costs and employee expenses dented motorcycle maker Bajaj Auto’s margins by 90 basis points to just 17.6%. Realisations at UltraTech were unexciting despite prices rising in southern India and the cement manufacturer was weighed down by fuel and power costs, all of which put pressure on profitability; the firm’s Ebitda dropped 4% y-o-y. Smaller firms like Rallis too disappointed the Street with both the agrichemicals and seeds segments putting up a mediocre show. Hindustan Zinc’s Ebidta fell 10% y-o-y driven by a fall in production