Q4 data show costs handled well by companies

If operating margins in the March quarter are anything to go by, companies seem to be handling cost pressures well.
A caveat is due, however. We’re talking about the operating margins for 390 companies (ex-banking and oil) that have declared their numbers so far, and they constitute only 26% of the total market capitalisation of the Bombay Stock Exchange.
Their aggregate operating margin stands at 19.5%, which is higher than what was seen in the last two quarters, though it’s 50 basis points lower than the same quarter last year.

Operating margins in the July-September and October-December 2010 quarters for these companies stood at 17.8% and 18.2%, respectively.

Experts said the results have thrown up a lot of variance and has differentiated the men from boys and only those companies which have shown better management have delivered.
“Clearly, the cost pressures are visible across the sectors be it in banking, due to higher cost of deposits, or in manufacturing and services sectors, due to higher raw material and wages. Those who have been able to pass on the costs or managed to control their costs have delivered good results,” said Anand Shah, CIO at BNP Paribas Asset Management.

The results have been divergent for companies within the same sector. For example, Axis Bank saw a decline in its net interest margins thereby disappointing the street, while HDFC Bank and ICICI Bank delivered in line with expectations.
In the steel sector, SAIL reported a 27% decline in profit, while Jindal Steel reported a 4% increase.

Similarly, in software, TCS and HCL Technologies outperformed peers like Infosys and Wipro in terms of profit growth.
The aggregate net profit for these 390 companies have grown 11.4% year on year, which is highest in this fiscal, aided by a 19.2% increase in operating profit and a 24% rise in other income.
The trend in topline growth, too, continues to be strong with a 22.2% increase in net sales year on year — the highest in the last eight quarters.

The growth in revenues has been strong across the board, with 300 of the 390 companies showing a positive trend, led by non-ferrous metals, mining, FMCG and gas distribution sectors.
“The earnings have not thrown much of a surprise and we would see 16-18% growth for companies in our universe. There have been a few negative surprises in software and banking sectors but the rest have delivered numbers in line with estimates,” said Ajay Parmar, head of institutional research at Emkay Global Financial Services.

The cement sector numbers have been also better than expected as companies benefited from higher realisation and growth in volumes.
Ultratech reported a 137% increase in net sales and a 218% increase in profit. Also, ACC and Ambuja Cements showed double-digit growth in sales even as net profit dipped by 10%.
However, the capital goods sector has seen severe margin pressures along with a slowdown in execution, which affected sales and profit growth. Analysts said these are early days and earnings growth may slow down a bit in the current fiscal to 15-16%.

“We are witnessing margin pressures across the manufacturing sector due to rising raw material costs which may impact the profits this quarter, and it may be passed on with some lag effect. We are expecting a 16% growth in Sensex earnings for the current fiscal before earnings growth momentum picks up in the next fiscal,” said Lalit Thakkar, managing director (instititution) at Angel Broking.