Earnings season holds out sliver of hope

Nov 26 2012, 09:44 IST
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SummaryIndia Inc Q2 results brought in some much-needed cheer for investors despite challenges.

Continuing challenges on the broader macroeconomic front nothwithstanding, the latest results season covering the performance of companies during the second quarter of the current fiscal has brought in some much needed cheer for investors.

Buoyed by a perceptible easing of the margin pressure, especially on account lower raw material prices and declining forex losses, companies have largely done better than during the first quarter. While topline growth has been sluggish, both profits and margins have perked up, prompting analysts to suggest that the corporate downturn could have bottomed out and a rebound is likely in the coming quarters, especially with an interest rate cut round the corner.

For 742 manufacturing and services companies (excluding oil firms) that issued their results till November 15, the overall year-on-year EBITDA margin has expanded by 14 bps (basis points, one bps being one-hundredth of a percentage point), after a decline of nearly 100-150 bps in previous quarters, according to CRISIL’s latest results update for Q2 FY’13. Notably, small-cap companies, despite a tepid 7 per cent Y-o-Y revenue growth, have reported a sharp 114 bps improvement in margins compared to a decline of 12 bps reported for large-cap companies. Strong performance by sectors like cement, pharmaceuticals, textiles, agricultural commodities and media, which have a greater share in small-cap universe, have contributed to the perceptible uptick in margins.

Large-caps that delivered above estimates included Maruti, Bajaj Auto, Dr Reddy’s, IDFC, Sun Pharma, Zee Entertainment, NTPC Ltd, L&T, HCL Tech and ICICI Bank, with a number of sectors defying the subdued sales trend that was visible across most sectors. Those that disappointed in earnings included Tata Steel, SAIL, Cairn India, Tata Motors, PNB and ONGC.

SECTORAL PERFORMANCES

A sectoral snapshot would provide greater insight into the companies that did well and the specific reasons for the uptick in the reported numbers.

Auto

On the whole, two-wheelers, cars and commercial vehicles have largely seen weak revenue growth due to pressure on volumes, in both, domestic and export markets. According to Motilal Oswal’s September 2012 quarterly review, among those bucking the trend, Bajaj Auto reported better than expected numbers, buoyed by higher realisations. Car market leader Maruti Suzuki too reported better than estimated results, buoyed by lower staff cost and royalty provision write-back, along with a favourable forex position. Tata Motors’s Jaguar & Land Rover arm reported in-line performance with quarter-on-quarter margin improvements driven by favourable market mix and forex

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