Sensex cos score big in Q1; 3 of 4 see surge in profit

Margins have improved, but sales still poor

Analysis of the net profit of the top 30 Sensex firms in the April-June quarter shows that their bottom line rose, on an average, 36 per cent over the year-ago period, after three quarters of weak earnings.

The global economic gloom notwithstanding, the Bombay Stock Exchange Sensex firms together saw their top line climb an average of  8 per cent in the June quarter.

“Earnings for corporate India remain meaningfully ahead well into the current reporting season ... average earnings growth is mid-teens, and a good 5 to 10 per cent ahead of our expectations, across various aggregates,” Citigroup said in its India Equity Strategy reporton corporates. .

Companies that have reported a significant surge in June quarter profit include Jaiprakash Associates (292 per cent), Mahindra & Mahindra (152 per cent), Tata Power (144 per cent), Hero Honda (83 per cent), and cement firm ACC Ltd (79 per cent).

Analysts say that even as the margins of the companies are improving, sales are poor as there is slack in demand.

“Businesses have clearly taken advantage of raw material costs (50 per cent of expenses), but also appear to have cut other operating costs, collectively driving up margins 211 basis points YoY. We believe rising margin is good, but rising demand or sales would probably be better,” the report added.

The country’s largest bank, SBI, posted 42 per cent growth in net profit, backed by a healthy rise in treasury, wholesale and retail banking operations.

Commenting on the SBI results, the Citigroup research note said, “SBI needs (more than others) growth and slightly higher rates; to leverage its bullish positioning, and also ease current strains.”

Besides, Tata Motors reported 58 per cent growth in profit. The eight laggards among the 30 Sensex companies are heavyweight Reliance Industries (12 per cent), DLF Ltd (86 per cent), Sun Pharma (57 per cent), Tata Steel (down 47 per cent), Sterlite Industries (42 per cent), ONGC (27 per cent), Hindalco (31 per cent) and Hindustan Unilever (2.7 per cent).

“Sales expectations are more in line with actual results and reflect a weak demand scenario ... earnings are ahead and reflect a healthy margin scenario,” the report said.

At a broader level, 178 out of BSE 500 companies have reported 17 per cent YoY growth in profit.

However, analysts feel with there being many surprises in earnings figures, the situation suggests volatility and modest predictability.

Meanwhile, sectoral performance at the broader level was more or less in line with anticipations, although street expectations have not necessarily been high. “The sector leaders have been banks, IT services, and telecom. Materials and consumer and capital goods have been in line with diversified financials the laggards,” Citigroup noted.